Different Kinds of Mortgages

Conforming Loans

Conforming mortgages are home loans that meet the credit and size standards of the government-sponsored entities -- GSEs -- Fannie Mae and Freddie Mac. The GSEs purchase mortgage loans that meet their requirements, providing a ready source of funds for mortgage lenders and an implied government guarantee that the loans will be repaid. The biggest restriction on conforming loans is the size of mortgage. In 2010 and 2011 the conforming limit was $417,000 for most of the country, with higher limits in high-cost areas.

Jumbo mortgages exceed the limits set by Fannie and Freddie for conforming mortgages. Jumbo mortgages do not have the implied government backing of conforming loans. Home buyers who need a jumbo loan will pay a higher interest rate, may need to put up a larger down payment, and credit qualification can be tougher.

Direct government mortgage programs provide a direct government guarantee for the repayment of the loan. The most widely available government mortgage program is FHA-insured loans. FHA loans have a low required down payment, and the Housing and Urban Development website -- HUD -- says credit qualification is easier. The U.S. Department of Veteran Affairs -- VA -- provides government-guaranteed home loans for current and former military members. VA loans allow financing of up to 100 percent of the purchase price. The U.S. Department of Agriculture -- UDSA -- provides mortgage loans in designated rural areas. USDA mortgages provide up to 100 percent financing for low- to moderate-income borrowers.

Mortgage loans can be either fixed rate or adjustable rate. A fixed-rate loan has the same interest rate and monthly payment for the entire term of the loan. Adjustable-rate mortgages reset the rate based on an index, usually once a year. Adjustable mortgage rates are tied to short-term market interest rates and usually offer an initial payment that is lower than with a fixed-rate mortgage. Homeowners with adjustable-rate mortgages will see their payments go up or down in future years based on the changes in the rates.