Conventional
A conventional mortgage is a loan that is long term (typically 30 or 15 years) and meets the guidelines as put forth by FNMA (Federal National Mortgage Association) and FHLMC (Federal Home Loan Mortgage Corp.).
Mortgage Insurance (MI) is required on a conventional loan if the loan-to-value is more than 80%. Mortgage insurance is typically paid on a monthly basis.
A conventional mortgage is generally non-assumable and does not have a pre-payment penalty.
Fixed Rate Conventional Mortgage
The most common type of Conventional Mortgage is a fixed rate mortgage. Two distinct characteristics of a fixed rate loan are an interest rate that doesn't change and a loan amount that is repaid in equal monthly payments.
The most common term lengths for fixed rate mortgages are 30 years and 15 years. A 15 year term usually has a lower interest rate than a 30 year term mortgage.
FHA Mortgage Program (a type of Government-Guaranteed mortgage)
A FHA mortgage is obtained through a local lender/broker, however the Federal Government guarantees these mortgages through the Department of Housing and Urban Development (HUD).
A borrower might choose a FHA mortgage because it allows for greater flexibility in income, credit, and down payment requirements. A loan that might not be approved as a conventional loan might be approved as a FHA loan.
All FHA loans require Mortgage Insurance (MI). An up front premium of 1.75% of the loan amount is required and is typically added to the loan amount. A FHA loan also requires a monthly MI premium of .5%. In comparison, a conventional mortgage only requires a monthly MI premium if the loan-to-value is over 80%.
VA Mortgage Program (a type of Government-Guaranteed mortgage)
A VA mortgage can be obtained through a local lender/broker, and similar to a FHA mortgage, it is guaranteed by a government agency, the Veterans Administration.
Unlike any other mortgage programs described, only eligible veterans that have served in the armed forces (as defined by VA) can obtain a VA loan.
One feature of a VA loan is the ability of an eligible veteran to finance up to 100% of the purchase price of a property. The veteran can also add the VA funding fee to the purchase price, thus lowering the amount of cash the borrower needs to purchase a home. The VA funding fee is a fee charged by the Veterans Administration to insure the payment of the mortgage.
All veteran borrowers should consider this mortgage program when reviewing their borrowing options. Regional VA offices can answer any questions regarding a veteran's eligibility status.