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Loan Glossary

There are a number of terms you may hear bandied about when discussing your mortgage. Here are just a few:

Conventional Loan: A conventional loan is one that is offered, underwritten, and backed by a private lender such as a bank. The alternative is a government-backed loan such as FHA, VA, or USDA. Conventional loans usually have a larger down payment requirement than their government-backed counterparts.

FHA (Federal Housing Administration) Loan: An FHA is insured by the government which protects the lender in case of default. The three buyer benefits of this loan are the low down payment, lower credit score requirements, and additional monies to fix the home up can be included in the loan amount. Buyers who want to take advantage of an FHA loan first need to find an FHA-approved lender. There is a minimum list of requirements the property must meet in order for FHA to back the loan and the home will undergo an FHA inspection.  Due to the low down payment, mortgage insurance is an additional expense the buyer will need to cover.

VA Loan: VA loans are managed by the Department of Veteran Affairs and are reserved for military service members. The benefit of a VA loan is it does not require a down payment. If you are a military service member, I can help you find a property, but when it comes time to apply for the loan, your Veterans Administration office will point you in the right direction and help you with the application process.

Conforming Loan: A conforming loan meets guidelines established by government-agencies Fannie Mae and Freddie Mac. The most-known guidelines pertain to the size of the loan, which is currently set to $417,000 (although this varies by county). Additional guidelines include debt-to-income ratios, loan documentation, loan-to-value ratio in excess of 90%, minimum credit score of the borrower, and recent bankruptcy. Conforming loans usually offer a lower interest rate than loans which do not conform.

Non-Conforming Loan:  In the event a borrower needs a loan larger than the current conforming amount of $417,000 (also called a Jumbo loan) or other parameters are non-conforming, a non-conforming loan may be a better option. However, these usually have higher interest rates than their conforming counterparts.

Jumbo Loan: Jumbo loans are larger than the conforming loan limit set in each county.  These usually carry a higher interest rate than a conforming loan.

Fixed Rate Mortgage: A mortgage in which the interest rate and principal and interest payments are fixed for the life of the loan.

ARM: This stands for Adjustable Rate Mortgage.