A mortgage is a secured loan which is taken by giving some asset as a security. They can be classified into two different categories. They are as follows:
1) Conventional and Government Loans
2) Fixed Rate Loans, Adjustable Rate Loans and the various combination loans.
Conventional and Government loans: Any loan which is a finance but not a FHA, VA or an RHS loans is known as a conventional loan.
FHA Loan: The Federal Housing Administration (FHA) is a part of the U.S. Department of Housing and Urban Development (HUD) .These loans have very low down payments. You can easily get these loans when compared to the conventional loans.
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VA Loans: Veteran Affairs (VA) Loans are loans that are given guarantee by the U. S. Dept of Veterans Affairs. This loan is awarded to the veterans and service persons to make it easy for them to get home loans with favorable rates and terms.
RHS Loan Programs: The Rural Housing Service (RHS) is a part of the U.S. Dept of Agriculture. This service gives guarantee for the loans taken by rural residents. These loans have absolutely zero down payments and very less closing costs.
State and Local Housing Programs: Various states and counties offer home finance programs. These have very low or medium rates of interest. Certain other programs like MCC (Mortgage Credit Certificates) are also awarded. This gives a tax credit on the interest payment. They also have other benefits like a lower interest rate than the current market rate.
Conforming Loans: Conventional loans may be conforming or non-conforming loans. A conforming loan is one in which the terms and conditions conform to the guidelines prescribed by Fannie Mae and Freddie Mac. These two institutions purchase mortgage loans which comply with their guidelines and sell the same as securities to investors. This gives a continuous flow of money to meet the home finance requirements in the American markets.
Jumbo Loans: The Fannie Mae and Freddie Mac institutions have a maximum loan limit. If a loan is taken above this, then it will carry a higher rate of interest than the conforming loans. These loans are known as jumbo loans.
B/C Loans: 'A' loans are those that conform to the borrower credit requirements stated by Fannie Mae and Freddie Mac. Those that do not satisfy this criterion may be 'B', 'C' or 'D'. These borrowers may have filed for bankruptcy, foreclosure or so on and they have poor credit scores.
Fixed Rate Mortgages (FRM): In these loans, the interest rate and the monthly mortgage installment is fixed. These can be availed for 10, 15, 20, 25, 30, or 40 years. Mostly, it is taken for 15 or 30 years.
Adjustable Rate Mortgage (ARM): The interest rate and monthly installments of these loans fluctuate over the period of the loan. It changes based on movements in some defined index. It mostly has some specified upper limit above which it cannot travel.
The above types of mortgage programs should be understood clearly by anyone who plans to take these types of loans.
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