Conventional Mortgage

In basic terms, any mortgage that is not insured by the federal government. Fixed and adjustable rate mortgages are both considered conventional. These loan types may be conforming or non-conforming, with conforming defined by government-sponsored entities Fannie Mae and Freddie Mac. A major factor that helps determine if a mortgage is conforming is the amount of the loan. If it’s above the conforming loan limit, it is then labeled a jumbo mortgage and will result in a higher rate.

Typically conventional mortgages result in higher down payment than those of government loans, and if the loan-to-value ratio is greater than 80 percent, mortgage insurance is required by the lender.

 


FHA Mortgage (Federal Housing Administration)

FHA loans are government-backed, which is designed to protect lenders against defaults, which in turn makes it possible to offer borrowers lower interest rates. The FHA is not actually lending the money to borrowers and they do not set the interest rates on FHA loans, they are simply the insurer of the mortgages.

With a FHA loan, the down payment can be as low as 3.5% of the purchase price of the home.


 

VA Mortgage (Veterans Administration)

A mortgage that is guaranteed by the Veterans Administration. It was signed in to law by President Franklin D. Roosevelt in 1944. VA loans provide veterans and/or their surviving spouses with a 100% financing (zero down payment) under a federally guaranteed mortgage. Because of the requirements laid out by FHA and conventional lenders, it’s one of the few places a one can buy a house with zero down. Better known as the GI Bill, this program has been highly successful and has helped millions of American veterans and their families acquire a home.



(1) The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes; and
(2) the consumer should consult a tax adviser for further information regarding the deductibility of interest and charges