When applying for a loan in Greater Boston for the first time, it may seem like there are *too* many types of mortgage loans, but in truth all of them can be classified under two broad groups:
1. Government Loans- Loans provided by government agencies
2. Conventional Loans- All other loans
image by wikipedia
Knowing what the above loans are will show you your options and help you to make an informed decision as to which loan to apply for.
Classification of Mortgage Loans by Lenders in the Greater Boston Area
Government Loans: These are loans offered or guaranteed by government agencies. Their interest rates will be lower and obtaining a loan without any down payment will be easier.
- FHA Loans: Different loan programs are provided by the Federal Housing Administration, which is a government agency whose purpose is to provide low interest loans to middle class and low income families. These loans are easier to qualify than conventional loans, since they were made to provide easy financing for people with low incomes.
- VA Loans: These loans are guaranteed by the Department of Veteran Affairs (the department does not provide the money, it only guarantees the loan made by a lender), meant for servicemen and veterans alike, these loans are easy to obtain (since they are guaranteed, lender risk will be reduced) and usually require no down payment.
- RHS Loans: Similar to VA loans, these loans are guaranteed by the Rural Housing Service of the US Agricultural Department. They are meant for people living in rural areas who wish to obtain easy mortgage loans without any down payment. This would be more applicable to outlying regions near Boston but not usually Boston proper.
Conventional/Private Loans: Any mortgage loan offered by any institution other than the FHA, VA, and RHS can be considered a conventional or private loan.
These are a little harder to obtain (which doesn’t mean ‘hard’ – it just means they aren’t on a special government program). People often think FHA/VA loans are hard to get; while they have more requirements, they’re often easier to make. Conventional loans typically have higher requirements but not more. The loans with the least interest rate are reserved for candidates with high credit scores, high income, and reasonable securities or collateral.
Conforming Loans: Any loan which is set according to the guidelines provided by the two government agencies Fanny Mae and Freddie Mac will fall under this category. The advantage of this type of loan is that interest rates will be lower (since the lender has a security option of selling your mortgage to Fanny Mae and Freddie Mac) than other loans. These loans cannot be classified as government loans because the capital is provided by private institutions (the government agencies were authorized to purchase such private loans to allow more capital flow).
Non-Conforming Loans: Since the value of the loan or the amount lent will be higher than other loans, the loan will not be in accord with the guidelines set by the government agencies, and the interest rate will also be higher than other loans (since these loans cannot be sold by the lender, the entire risk will have to be borne by them).
State/Local Housing Loans: Many states, including Massachusetts, offer different programs and provide assistance to help the MA citizen purchase a home. Some of the common programs offered at various times might be low interest mortgage loans, assistance in down payment for loans, personalized loans (for first time buyers) according to your profile. These loans differ according to states, and some states do not have such plans. For latest Mass. loan programs, check with your loan officer.
Any mortgage loan you apply for in Massachusetts (and around the US) will fall under one of the above categories. If you are eligible try to get a government loan, these are easier to obtain and have lower interest rates. But non-eligability doesn’t mean you wouldn’t qualify for excellent conventional or private (or state) loans.