In basic terms, any mortgage that is not insured by the federal government is “Conventional.” Fixed- and adjustable-rate mortgages are both considered conventional. These loan types may be “conforming” or “non-conforming.”
A conforming mortgage is backed by the government-sponsored entities Fannie Mae and Freddie Mac. There’s also a size limit on conforming loans. If a loan goes over the limit, it’s called a “jumbo” mortgage and has a higher interest rate.
Typically, conventional mortgages result in higher down payments than government loans, (FHA and VA). And, if you borrow more than 80% of the home’s value, mortgage insurance is required.
FHA Mortgage (Federal Housing Administration)
FHA loans are government-backed, like savings bonds. 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 an FHA loan, the down payment can be as low as 3.5% of the purchase price of the home.
VA Mortgage (Veterans Administration)
VA loans provide veterans and/or their surviving spouses with a 100% financed, zero down payment, federally guaranteed mortgage. Unlike FHA and conventional loans, it’s one of the few places you can buy a house with zero down. Better known as the GI Bill, this program has been highly successful. It has helped millions of American veterans and their families buy 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.