 TITLE: What Is a Mortgage and How Does It Work? CONTENT: Types of Mortgages\n------------------\nThere are many different types of mortgages, and each can vary based on the length and amount of the loan, how the interest rate works, and whether the loan is backed by a government agency.\n### Conventional Loan\nA conventional mortgage loan is a loan that's not backed by a government program or insured by a government agency. Conventional loans include mortgages originated by banks, credit unions and mortgage lenders.\nIn some cases, conventional loans are issued by one mortgage lender and then sold to another mortgage lender who services the bulk of the loan. Your first few payments are to the mortgage lender that you closed with, and then you will receive a letter letting you know that your mortgage loan will be serviced by another lender.\n### Government-Insured Loan\nAs the name suggests, these loans are insured by a government agency, such as the Federal Housing Administration (FHA), Veterans Administration (VA) or the U.S. Department of Agriculture (USDA).\nThe government does originate these loans, however. Instead, you'll get the loan through a private lender, and it will be insured by the federal agency.\nThe only exception is the USDA Direct Housing Program, which provides loans to very low-income families. Its Guaranteed Housing Loans program, however, acts similarly to other government-insured loans.\nHere's a breakdown of some of the common government-insured loans that are available:\n*   **FHA loans**: Available to all types of home buyers. The government insures the lender against the borrower defaulting on the loan. FHA loans allow buyers to make a down payment of as low as 3.5% on the purchase price of a home.\n*   **VA loans**: A loan for military members and their families. Borrowers can purchase a home with $0 down and receive 100% financing.\n*   **USDA or RHS loans**: Mainly geared to rural borrowers who meet the income requirements from the program. These loans don't require a down payment.\n### Fixed-Rate Mortgage\nFixed-rate mortgage loans are very popular and typically come with repayment terms of 15, 20 or 30 years. They have the same interest rate for the entire loan term, which means the principal and interest portion of the monthly payment will stay the same throughout the life of the loan.\n### Adjustable-Rate Mortgage\nAdjustable-rate mortgage (ARM) loans have an interest rate that will change or adjust from the initial rate. For example, a 5\/1 ARM loan will have a fixed interest rate for the first five years, then adjust every year based on the current market rates.\nARMs can be popular because they tend to come with a lower interest rate compared with a fixed-rate mortgage, at least initially; the risk with ARMs is that rates can rise dramatically over time.\n### Conforming Loan\nA conforming loan is a home loan that conforms to limits set by the Federal Housing Finance Agency (FHFA) and meets the funding criteria of Fannie Mae and Freddie Mac, government-sponsored enterprises that purchase mortgages from lenders, providing stability to the housing market. The FHFA's 2019 limits for conforming loans include $484,350 or less in 48 states and $726,525 or less for Alaska and Hawaii.\nBecause conforming loans meet the guidelines set by Fannie Mae and Freddie Mac, they typically offer lower interest rates and better overall terms than non-conforming loans.\n### Non-Conforming Loan\nAlso called a jumbo loan, a non-conforming loan is a mortgage loan where buyers borrow an amount greater than the conforming mortgage loan limit. END