Conventional loans are simply any institutional or non-institutional loan that is not insured or guaranteed by the government. For example, FHA-insured and VA-guaranteed loans are not conventional loans, because they are backed by a government agency. Conventional loans can by obtained through institutional as well as non-institutional lenders. Banks, savings and loans, and life insurance companies are institutional lenders. Non-institutional lenders would be credit unions, mortgage bankers, mortgage brokers, investment trusts and private individuals.

Conforming loans, which can be conventional or government backed, are loans that can be sold in the secondary market. These secondary agencies buy existing loans from institutional and non-institutional lenders. The best-known secondary agencies are "Fannie Mae" or Federal National Mortgage Association, "Ginnie Mae" or Government National Mortgage Association, and "Freddie Mac" or Federal Home Loan Mortgage Corporation. These agencies purchase loans from lenders that conform to their standards, thus the term "conforming loan". Each of these agencies has different requirements for purchasing loans.

Non-conforming loans are loans that don't meet the standards of the above agencies and therefore will not be purchased by these agencies. A non-conforming loan usually has a higher interest rate than a conforming loan.

Jumbo loans are larger than conforming loans. Today, Jumbo loans are any loans greater than the "Fannie Mae" limit of $250,000-$270,000.

Fixed-rate loans are paid at an unchanged interest rate during the loan's full term. Payment remains the same throughout the life of the loan. Because budgeting of payments is simple, most people prefer to have a fixed-rate mortgage. Unless the spread between fixed-rate interest and adjustable-rate interest is large, most people will take a fixed-rate loan. The most common fixed-rate loan is the 30-year loan. This loan allows the borrower to spread his or her payments over a 30-year period, making the monthly payment more affordable and giving the borrower more discretionary income. The 15-year fixed-rate loan is gaining in popularity, however. With this loan, for only a 20% higher payment than you would make on a 30-year loan, you can pay off the mortgage in half the time. You can also save a substantial amount of money in interest charges that you don't pay the lender.

Adjustable-rate loans permit the lender to periodically change the interest rate on a loan to adjust for the cost of lending money. If interest rates go up, the borrower's monthly payment will increase; if interest rates decline, the payment will go down. Adjustable-rate loans shift the risk of interest-rate changes to the borrower. Lenders usually charge a lower interest rate for these loans than for a fixed-rate loan. There are many different adjustable-rate loans, and you need to analyze which loan is best for you. Some of the key factors to observe are indexes, margin, adjustment period, periodic caps and lifetime caps. Each of these factors can affect the attractiveness of different loans. When you are comparing adjustable-rate loans to see which one is best for you, compare not only the interest rate but also the other parts of the adjustable-rate loan. You will need to compare the indexes, caps, and margins of these loans. The following is a brief explanation of some of the indexes that lenders use:

• Treasury index is one of the most popular. It is tied to U. S. Treasury securities and can be very volatile. Loans that are tied to this index have a chance of changing rapidly, so it is important to have reasonable caps on loans tied to this index.

• Cost of Funds index is usually tied to the cost of money to your Federal Home Loan District. This loan has traditionally been the slowest to change of all the indexes. Loans tied to this index don't start with the lowest interest rate - in fact they usually have the highest - but change slowly compared to the other indexes.

• LIBOR index is short for The London Interbank Offered Rate and is tied to interest rates which international banks use to borrow and lend money. The LIBOR index is an index that usually falls between the volatility of the Treasury index and the Cost of Funds index.

For those who don't feel comfortable with a pure adjustable loan, take a look at the new hybrid loans that lenders are offering. A hybrid loan begins as a fixed-rate loan for the first 3, 5, 7 or 10 years, and then becomes an adjustable-rate loan.

Negative amortization loans allow the lender to add any unpaid interest to the principal balance. So, if you are making payments on your loan and the interest rate goes up, the lender has the right to add the interest to your loan amount. The attraction to a negative amortization loan is the initial state rate, which is very low in comparison to other types of loans. All negative amortization loans are adjustable-rate loans.

Interest-only loans are available from private investors. These loans reduce your monthly payment because you do not pay any principal in your monthly payment. These loans are usually available for 5, 7 or 10 years. Since your payment does not include any principal there is a balloon payment at the end of the loan. In most cases, your balloon payment is the amount of the loan you borrowed from the lender. You will have to refinance the loan or sell the property to pay off the loan.

FHA-insured loans were created by congress in 1934. Today, the Federal Housing Authority is part of the Department of Housing and Urban Development (HUD). The maximum FHA loan amount varies depending on geographic region and the median price of homes. All FHA homebuyers must obtain loans at approved lenders. Once the FHA qualifies the buyer, the approved local lender will make the loan. FHA does not lend the money; it only insures the approved lender against loss of money. The FHA has many requirements for its different loan programs, which means both the borrower and the property must meet the agency's minimum standards to qualify for a FHA loan. FHA has less stringent qualifying standards than conventional loans, however, and may require a smaller down payment. FHA loans do not have any prepayment penalties, but do require the borrower to pay mortgage insurance premiums. The borrower can finance some of the closing costs with a FHA loan. FHA requires an impound account for property taxes and insurance. FHA will make a loan on a home, condo, duplex, triplex, or four-unit building. FHA also has a home-improvement loan to a maximum of $25,000. For more information about FHA loans.

VA-guaranteed loans are made only by approved lenders. These approved lenders make the loan to the borrower, and the Veterans Administration guarantees the lenders against losses. VA loans are made to eligible veterans who served on active duty for 181 days or more and were honorably discharged. VA service requirements vary depending upon when the veteran served in the military. It is best to go to the VA web site for more detailed information about eligibility. VA loans are attractive to borrowers for the following reasons:

• The typical VA loan does not require a down payment.

• VA loans do not have an income restriction for the borrower.

• VA loans have less stringent underwriting standards then conventional loans do.

• VA loans have no prepayment penalties.

VA loans are not attractive for everyone because of the length of time it takes to obtain the loan and the maximum loan amount you can borrow. Also, you must occupy the property to obtain a VA loan.

California veterans loans are offered and maintained by the state of California for eligible veterans. The program is called the California Veterans Farm and Home Purchase Program, or Cal-Vet loans. This loan program is very different than any of the above loans. In this program, the state of California purchases the home that the veteran has selected and then sells the property to the California veteran on a Contract of Sale. The state of California remains on title until the veteran pays off the loan. The veteran has equity ownership, but not title ownership. To be eligible for a Cal-Vet loan, a veteran must have served at least 90 days of active duty during a wartime period and must have been honorably discharged. California veterans must apply for the loan within 30 years of their discharge date. To be eligible for a Cal-Vet loan, a veteran is required to be a native Californian, or have been living in California at the time of entry into active service, and a bonafide resident of the state. Now, there is no residence requirement. Cal-Vet loans require the veteran to occupy the property, and the maximum purchase price is $250,000. Funds for Cal-Vet loans come from the sale of Veterans bonds voted into law when passed at each election. For more information about Cal-Vet loans.