Loan Types

Two of the most common types of mortgage loans are – FHA and Conventional. Within each type there is further classification based on amount thresholds and underwriting conformity. Below is a description of each type including key features.

FHA – A loan that is insured against default by the Federal Housing Administration

  • Low down payment is required on these loans and the credit underwriting is more flexible
  • There are limits set on eligible loan amounts every year that vary by property type and area.
  • Higher loan limits have been set for some high cost areas as part of the 2008 Stimulus Package
  • FHA loan requires an upfront insurance premium payment (which may be financed into the loan amount) and also a monthly premium included in the total mortgage payment.

Conventional – A loan that is not guaranteed or insured by the federal government

Conventional Conforming: Loans that conform to the guidelines of Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, who purchase these loans from the lending institutions, package them as securities, and sell them to investors.

  • There are limits set on the eligible loan amounts every year, and they vary based on the type of property. These limits are referred to as conforming limits.
  • Higher limits have been set for some High Cost areas as part of the 2008 Stimulus Package which are referred to as Agency Jumbo Loans or Super Conforming loans.

Conventional Non Conforming: Loans that do not conform to the guidelines of Fannie Mae and Freddie Mac

  • Lenders mostly hold these loans in their own portfolio or sell them to private investors.
  • In cases where the loan amount exceeds a specified maximum (usually the conforming limit for single family residence - currently at $417,000) the loan is referred to as a Jumbo loan.
  • Higher down payment is required on non-conforming loans and the rates are generally higher too.