Very simply speaking, a mortgage is a home loan. When you as a buyer decide to purchase a house, you’re allowed to pay down a portion of the price of the home (down payment) while the lender (bank credit union etc) lets you borrow the rest of the money.
Once the transaction closes, the buyer is now permitted to move into the house and live there while paying back the money of the mortgage lender.. Typically on a 15 or 30 year schedule.
Similar to other loans, a mortgage is a trust between you and your lender.
Should a buyer not pay back the money, there’s a safeguard in place… the house is not yours until you pay back the loan in full
This is why your home is considered collateral that your lender can take away from you if you stop making your loan payments.
Conventional Mortgages: Loan that isn’t backed by the federal government that is fixed in it’s term and rate. Fannie Mae and Freddie Mac are government sponsored entities that buy conforming loans on the secondary mortgage market, pool those loans together, then sell them to investors as mortgage-backed securities in the open market.
The main difference between Fannie Mae and Freddie Mac boils down to who they buy the mortgages from.
Fannie Mae mostly buys mortgages loans from commercial banks, while Freddie Mac mostly buy mortgages loans from smaller banks “thrift” banks.
Conforming Mortgage Loans: Loans that conform to financing limits set by the Federal Housing Finance Agency (FHFA) and meet underwriting guidelines set by Fannie Mae and Freddie Mac. Benefits of a conforming loan include:
The limits on a conforming loan differs from zip code to zip code. You should look up the limits for your target home search!
Nonconforming Mortgage Loans (Jumbo loans): Loans that don't conform to federal loan limit. Benefits of a non-conforming loan include:
Government-Insured FHA Loans: Loan that is backed by the US Federal Housing Administration and provided by an FHA lender
Government-Insured VA Loans: Loan that is guaranteed by the US Department of Veterans Affair
Government-Insured USDA Loans: Loan that is zero-down-payment for rural and suburban home buyers backed by the United States Department of Agriculture
Fixed-rate mortgages (FRMs): loans that have an interest rate that stays the same for the life of the loan. Mortgages are usually offered in 15-year or 30-year repayment terms.
Adjustable-rate mortgages (ARMs): loans that come with an interest rate that fluctuates or varies over time depending on market conditions.