All mortgages are called conventional unless they are government-backed loans. Conventional mortgages are made by private lenders.
Conventional fixed-rate mortgages:
This traditional, "tried and true" mortgage option is a loan with a constant interest rate and level, equal payments during a set period of time -- most commonly, 30 years. The biggest selling point of fixed-rate loans is predictability, and they are particularly suited to people with steady incomes. If lower rates dictate the time is right to refinance, it's a good idea to compare the costs of incurring a new mortgage -- such as prepayment penalties and loan origination costs. Be sure to compare the costs of incurring a new mortgage -- such as loan origination costs and points. It's also a good idea to ask about prepayment penalties. You may want to refinance your loan or pay it off early to eliminate thousands of dollars in interest.
Adjustable-rate mortgages (ARMs):
As the name implies, the interest rate on an adjustable-rate mortgage changes throughout the term to stay current with the present interest rates. ARMs are most popular when rates are relatively high and appear to be dropping and when the difference between the ARM and the fixed-rate is greater than 2 to 3 percent. Different lenders offer variations in the front end of their ARM plans, such as the points you pay or discounted initial rates. To make a useful comparison of an ARM rate, consider the index upon which the rate is based, the margin or spread between that index and the rate paid, and the intervals at which the rate and payments are adjusted.
Note: Always look at the index plus the margin when comparing ARMs. The larger the margin, the less likely the rate you pay will go down, even if the interest rates drop.
Federal government programs:
Federal Housing Administration (FHA) insured loans:
Lenders offer FHA mortgages on a new or existing single-family home for as little as 3 percent down. FHA mortgages are also assumable. Sometimes a premium is required when the mortgage is assumed, then refunded when the note is paid off. Down payments are usually low.
Veterans Administration (VA) guaranteed loans:
The Veterans Administration guarantees lenders against loss if a property is foreclosed due to default. These assumable loans are available to eligible veterans and may be used to buy, refinance, construct or repair a house. If the VA property appraisal is less than the sale price, the borrower pays the difference as a down payment.
Farmers Home Administration (FmHA) loans:
The government makes these loans available to persons of moderate to very low income in rural or non-metropolitan areas.