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Department
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# 01237281
Department of Real Estate
"License Information"
(916) 227-0931
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Understanding
Loan Types
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What
type of
loan program
is best for you?
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The
subjects below explain the main loan categories that the many loan programs
fall under. These are major types of loans, not to be confused with
the individual loan programs themselves (such as Fixed
Rate Loans or Adjustable Rate Mortgages).
Click
on a loan type below:
- Conventional
Loans
- Conforming
Loans
- Non-Conforming
Loans
- Government
Loans
- In-House
or Portfolio Loans
- Commercial
Loans
- CONVENTIONAL
LOANS:
Conventional
loans are loans that are not insured or guaranteed by a government
agency (see FHA and VA for information on government loans).
They can be conforming or non-conforming loans.
Most of the conventional loans that have been made in the last several
years have three basic attributes in common: 1) They have been for
long terms, 2) They have been loans with fixed interest rates, and
3) they have been fully amortized (see Fixed Rate
Loans and Adjustable Rate Loans.
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- CONFORMING
LOANS:
Conforming
loans can be resold in the secondary market due to the fact that they
meet nationally accepted underwriting criteria established by national
secondary market investors, primarily Fannie Mae (FNMA) and Freddie
Mac (FHLMC). This criteria includes down payment amounts, maximum
loan amounts, property specifications, borrower income requirements
and credit guidelines. Due to the importance of being able to
liquidate real estate investments (loans) in the event of a financial
problem, the trend for lenders is to obtain loans that meet secondary
market standards.
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NON-CONFORMING
LOANS:
Non-conforming
loans are loans that do not conform to the guidelines set forth by
Fannie Mae or Freddie Mac. Non-conforming loans consist of Jumbo
loans (exceeding the conforming loan limit), inadequate credit history
or derogatory credit, not enough income, home equity or home improvement
loans, credit lines, and second mortgages to name a few.
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- GOVERNMENT
LOANS:
Government
loans consist of loans that are in some way guaranteed or purchased
by government owned corporations or organizations. For instance,
GNMA (Government National Mortgage Association) assists in the financing
of urban renewal and housing projects by providing below-market rates
to low income families. GNMA guarantees the payment of principal
and interest on FHA and VA mortgages through its mortgage-backed securities
program. It operates under the Department of Housing and Urban
Development (HUD).
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- IN-HOUSE
or PORTFOLIO LOANS:
Portfolio
loans are loans that banks or other lending institutions may keep
"in-house", or sell to the secondary market (FNMA or FHLMC).
The qualifying guidelines for these types of loans may be more flexible
than the requirements set forth by secondary market investors.
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- COMMERCIAL
LOANS:
Commercial
loans are generally made by commercial banks who normally supply capital
for business ventures and construction activities on a comparatively
short-term basis. Although in recent years, large commercial
banks have increased their participation in home mortgage lending.
They usually make loans on residential properties with five or more
units (apartment complexes), warehouses, office buildings, etc.
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Return
to the Mortgage Information page
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