Mortgage loan is the generic term for a loan secured by a mortgage on real property; the "mortgage" refers to the legal security, but the terms are often used interchangeably to refer to the mortgage loan. Mortgage loans generally refer to a loan secured by residential property, often for the purpose of acquiring the residence. Mortgage loans may be lower priced than other forms of borrowing because the value of the property reduces risk for the lender.

Mortgage lending is the primary mechanism used in many countries to finance private ownership of residential property. For commercial mortgages see the separate article. Although the terminology and precise forms will differ from country to country, the basic components tend to be similar:

• Property: the physical residence being financed. The exact form of ownership will vary from country to country, and may restrict the types of lending that are possible.
• Mortgage: the security created on the property by the lender, which will usually include certain restrictions on the use or disposal of the property (such as paying any outstanding debt before selling the property).
• Borrower: the person borrowing who either has or is creating an ownership interest in the property.
• Lender: any lender, but usually a bank or other financial institution.
• Principal: the original size of the loan, which may or may not include certain other costs; as any principal is repaid, the principal will go down in size.
• Interest: a financial charge for use of the lender's money.
• Foreclosure or repossession: the possibility that the lender has to foreclose, repossess or seize the property under certain circumstances is essential to a mortgage loan; without this aspect, the loan is arguably no different from any other type of loan.

Many other specific characteristics are common to many markets, but the above are the essential features. Governments usually regulate many aspects of mortgage lending, either directly (through legal requirements, for example) or indirectly (through regulation of the participants or the financial markets, such as the banking industry), and often through state intervention (direct lending by the government, by state-owned banks, or sponsorship of various entities). Other aspects that define a specific mortgage market may be regional, historical, or driven by specific characteristics of the legal or financial system.

• Advance: This is the money you have borrowed plus all the additional fees.
• Base Rate: In the United States, this value is set by the Federal Reserve and is known as the Discount Rate or the Prime Rate.
• Bridging Loan: This is a temporary loan that enables the borrower to purchase a new property before the borrower is able to sell another current property.
• Disbursements: These are all the fees of the solicitors and governments, such as stamp duty, land registry, search fees, etc.
• Pre-approval: A loan officer has pulled credit from the borrower, matched them up with a loan, and can guarantee funding for purchase.
• Pre-Payment Penalty / Redemption Penalty: This is the amount of money due if the mortgage is paid in full before the time finished.
• Pre-qualification: A loan officer has taken some information from the borrower, and made a tentative decision, but not verified any of it.
• Equity: This is the market value of the property minus all loans outstanding on it.
• First time buyer: This is the term given to a person buying property for the first time.
• Loan Origination Fee: A charge levied by a creditor for underwriting a loan. The fee often is expressed in points. A point is 1 percent of the loan amount.
• Sealing Fee: This is a fee made when the lender releases the legal charge over the property.
• Subject To Contract: This is an agreement between seller and buyer before the actual contract is made.
• Balloon loans: after a series of low payments for a fixed period of time, then the entire loan balance is due in a large lump sum.

• LTV: Loan To Value.
• DTI: Debt To Income.
• ARM: Adjustable Rate Mortgage.
• VOI: Verification Of Income.
• VOE: Verification Of Employment.
• PMI: Private Mortgage Insurance.
• NINA: No Income No Asset. (No-Doc Loan)

Mortgage loans are generally structured as long-term loans, the periodic payments for which are similar to an annuity and calculated according to the time value of money formulae. The most basic arrangement would require a fixed monthly payment over a period of ten to thirty years, depending on local conditions. Over this period the principal component of the loan (the original loan) would be slowly paid down through amortization. In practice, many variants are possible and common worldwide and within each country.

Lenders provide funds against property to earn interest income, and generally borrow these funds themselves (for example, by taking deposits or issuing bonds). The price at which the lenders borrow money therefore affects the cost of borrowing. Lenders may also, in many countries, sell the mortgage loan to other parties who are interested in receiving the stream of cash payments from the borrower, often in the form of a security (by means of a securitization). In the United States, the largest firms securitizing loans are Fannie Mae and Freddie Mac, which are government sponsored enterprises.

Mortgage lending will also take into account the (perceived) credit worthiness of the mortgage loan, that is, the likelihood that the funds will be repaid (usually considered a function of the credit worthiness of the borrower); that if they are not repaid, the lender will be able to foreclose and recoup some or all of its original capital; and the financial, interest rate risk and time delays that may be involved in certain circumstances.

More recently, mortgage loan brokers have expanded their businesses to include a web presence. There is now even a market for standard web templates which are used by brokers who want to quickly develop an online component to their business.

There are many types of mortgages used worldwide, but several factors broadly define the characteristics of the mortgage. All of these may be subject to local regulation and legal requirements.

• Interest: interest may be fixed for the life of the loan or variable, and change at certain pre-defined periods; the interest rate can also, of course, be higher or lower.
• Term: mortgage loans generally have a maximum term, that is, the number of years after which an amortizing loan will be repaid. Some mortgage loans may have no amortization, or require full repayment of any remaining balance at a certain date, or even negative amortization.
• Payment amount and frequency: the amount paid per period and the frequency of payments; in some cases, the amount paid per period may change or the borrower may have the option to increase or decrease the amount paid.
• Prepayment: some types of mortgages may limit or restrict prepayment of all or a portion of the loan, or require payment of a penalty to the lender for prepayment.

The two basic types of amortized loans are the fixed rate mortgage (FRM) and adjustable rate mortgage (ARM) (also known as a floating rate or variable rate mortgage). In many countries, floating rate mortgages are the norm and will simply be referred to as mortgages; in the United States, fixed rate mortgages are typically considered "standard." Combinations of fixed and floating rate are also common, whereby a mortgage loan will have a fixed rate for some period, and vary after the end of that period.

In a fixed rate mortgage, the interest rate, and hence periodic payment, remains fixed for the life (or term) of the loan. In the U.S., the term is usually up to 30 years (15 and 30 being the most common), although longer terms may be offered in certain circumstances. For a fixed rate mortgage, payments for principal and interest should not change over the life of the loan, although ancillary costs (such as property taxes and insurance) can and do change.

In an adjustable rate mortgage, the interest rate is generally fixed for a period of time, after which it will periodically (for example, annually or monthly) adjust up or down to some market index. Common indices in the U.S. include the Prime Rate, the London Interbank Offered Rate (LIBOR), and the Treasury Index ("T-Bill"); other indices are in use but are less popular.

Adjustable rates transfer part of the interest rate risk from the lender to the borrower, and thus are widely used where fixed rate funding is difficult to obtain or prohibitively expensive. Since the risk is transferred to the borrower, the initial interest rate may be from 0.5% to 2% lower than the average 30-year fixed rate; the size of the price differential will be related to debt market conditions, including the yield curve.

Additionally, lenders in many markets rely on credit reports and credit scores derived from them. The higher the score, the more creditworthy the borrower is assumed to be. Favorable interest rates are offered to buyers with high scores. Lower scores indicate higher risk for the lender, and higher rates will generally be charged to reflect the (expected) higher default rates.

A credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the credit worthiness of that person, which is the likelihood that the person will pay his or her debts. A credit score is primarily based on credit report information, typically sourced from credit bureaus / credit reference agencies.

Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. The use of credit or identity scoring prior to authorizing access or granting credit is an implementation of a trusted system.

Credit scoring is not limited to banks. Other organizations, such as mobile phone companies and government departments employ the same techniques. Credit scoring also has a lot of overlap with data mining, which uses many similar techniques.

A credit score is a number between 330 and 830, based on a statistical analysis of a person's credit files, to represent the credit worthiness of that person, which is the likelihood that the person will pay his or her bills. A credit score is primarily based on credit report information, typically from the three major credit bureaus namely Experian, Transunion and Equifax.

FICO is a credit score developed by Fair Isaac & Co scale. It is used by many mortgage lenders that use a risk-based system to determine the possibility that the borrower may default on financial obligations to the mortgage lender.

Each year, a person in US is entitled for one free credit report from each of the 3 agencies. The 3 Credit bureaus run a website where users can get their free credit report, normally without the credit scores. The credit scores would be available as an add-on feature of the report for a fee.

The process by which a mortgage is secured by a borrower is called origination. This involves the borrower submitting an application and documentation related to his/her financial history and/or credit history to the underwriter. Many banks now offer "no-doc" or "low-doc" loans in which the borrower is required to submit only minimal financial information. These loans carry a slightly higher interest rate (perhaps 0.25% to 0.50% higher) and are available only to borrowers with excellent credit.

Sometimes, a third party is involved, such as a mortgage broker. This entity takes the borrower's information and reviews a number of lenders, selecting the ones that will best meet the needs of the consumer.

Loans are often sold on the open market to larger investors by the originating mortgage company. Many of the guidelines that they follow are suited to satisfy investors. Some companies, called correspondent lenders, sell all or most of their closed loans to these investors, accepting some risks for issuing them. They often offer niche loans at higher prices that the investor does not wish to originate.

If the underwriter is not satisfied with the documentation provided by the borrower, additional documentation and conditions may be imposed, called stipulations. The meeting of such conditions can be a daunting experience for the consumer, but it is crucial for the lending institution to ensure the information being submitted is accurate and meets specific guidelines. This is done to give the lender a reasonable guarantee that the borrower can and will repay the loan. If a third party is involved in the loan, it will help the borrower to clear such conditions.

The following documents are typically required for traditional underwriter review. Over the past several years, use of "automated underwriting" statistical models has reduced the amount of documentation required from many borrowers. Such automated underwriting engines include Freddie Mac's "Loan Prospector" and Fannie Mae's "Desktop Underwriter". For borrowers who have excellent credit and very acceptable debt positions, there may be virtually no documentation of income or assets required at all. Many of these documents are also not required for no-doc and low-doc loans.

• Credit Report
• 1003 - Uniform Residential Loan Application
• 1004 - Uniform Residential Appraisal Report
• 1005 - Verification Of Employment (VOE)
• 1006 - Verification Of Deposit (VOD)
• 1007 - Single Family Comparable Rent Schedule
• 1008 - Transmittal Summary
• Copy of deed of current home
• Federal income tax records for last two years
• Verification of Mortgage (VOM) or Verification of Payment (VOP)
• Borrower's Authorization
• Purchase Sales Agreement
• 1084A and 1084B (Self-Employed Income Analysis) and 1088 (Comparative Income Analysis) - used if borrower is self-employed

Real property in most jurisdictions is conveyed from the seller to the buyer through a real estate contract. The point in time at which the contract is actually executed and the title to the property is conveyed to the buyer is known as the "closing". It is common for a variety of costs associated with the transaction (above and beyond the price of the property itself) to be incurred by either the buyer or the seller. These costs are typically paid at the closing, and are known as closing costs.

Examples of typical closing costs might include:

• Attorney (Lawyer) fees, paid by either or both parties, for the preparation and recording of official documents. The principals and/or lender may each be represented by their own attorney. Typically required by institutional/commercial lenders to ensure documents are prepared correctly.
• Title service cost(s), paid by either party according to the contract but by default seller may pay the majority, for title search, title insurance, and possibly other title services. In some cases the attorney may do the title search or the title service and attorney fees may be combined. Required by institutional/commercial lenders and often by the real estate contract.
• Recording fees, paid by either party, charged by a governmental entity for entering an official record of the change of ownership of the property. Required by the government for recording the deed.
• Document or Transaction Stamps or Taxes, paid by either or both parties depending on location (area of jurisdiction), charged by a governmental entity as an excise tax upon the transaction. Required by law.
• Survey fee for a survey of the lot or land and all structures on it, paid by either party, to confirm lot size and dimensions and check for encroachments. Required by institutional/commercial lenders.
• Brokerage Commission, paid by the seller to a Real Estate Broker, to compensate the Broker(s) involved in the sale for their services in marketing the property, finding a buyer, and assisting in the negotiations. Brokerage commissions are usually computed as a percentage of the sale price, and are established in a listing agreement between the seller and the listing broker. The listing broker may offer Buyer Agents a portion of their commission as an incentive to find buyers for the property. Payment is required if real estate brokerage service was used. This is often one of the largest closing costs.
• Mortgage Application Fees, paid by the buyer to the lender, to cover the costs of processing their loan application. In some cases, the buyer would pay the lender the application directly and prior to closing, while in other cases the fee is part of the buyer's closing costs payable at closing.
• Points, paid by the buyer to the lender. Points are a form of pre-paid interest, charged by the lender as an alternative to charging a higher rate of interest on the mortgage loan. One point equals one percent of the loan principal.
• Appraisal Fees, usually paid by the buyer[citation needed] (although occasionally by the seller through negotiation), charged by a licensed professional Appraiser. Many lenders will require that an appraisal be performed as a condition of the mortgage loan. The purpose of this appraisal is to verify that the sale price of the property (upon which the underwriting of the loan is based) is equal to or less than the fair market value of the property.
• Inspection Fees, usually paid by the buyer[citation needed] (although occasionally by the seller), charged by licensed home, pest, or other inspectors. Some lenders require inspections (such as termite inspection) to verify that the property is in good condition, which is necessary to assure that the property will retain the necessary collateral value to secure the mortgage loan.
• Home Warranties, paid by either the buyer or the seller. Warranties are available on resale homes insuring major household systems against repair or replacement for the buyer's initial year of ownership. Sellers will sometimes offer these warranties as a marketing strategy, or buyers can elect to purchase them at closing.
• Pre-paid Property Insurance, paid by the buyer but may be reimbursed by the seller. Lenders will typically require that a mortgaged property be insured at all times throughout the life of the mortgage, and will usually require that the first full year's property insurance premium be paid in advance by the buyer. If the buyer has not already paid the insurance company directly, this would become another closing cost payable at closing.
• Pro-rata property taxes, paid by the seller, the buyer, or both. Most (but not all) jurisdictions assess taxes on real property, which are usually payable at a specified date annually. Since all but a tiny fraction of real estate transactions close on a date other than this one specified annual date, most transactions must include an adjustment to assure that both the seller and the buyer end up paying their share of the annual property tax, proportionate to the percentage of the year that each has ownership of the property. Usually required by institutional/commercial lenders and by the real estate contract.
• Pro-rata Homeowner Association Dues, paid by the seller, buyer, or both. If the property is covered by a Homeowner Association (HOA), the HOA will normally be funded by dues assessed against each property owner. Again, since the ownership of the seller and buyer are each fractional in the year of the transaction, there must be an adjustment made so that each owner pays their proportional share. Often required by institutional/commercial lenders and by the real estate contract.
• Pro-rata Interest, paid by the buyer but may be reimbursed by the seller. The monthly mortgage payment is calculated and payable on a specified day each month. If the closing does not actually fall on that specified date (which is usually the case), then an adjustment must be made to calculate the interest on the loan for the number of extra days until the first payment is due.

Other items in addition to the above may be common in some jurisdictions, and some transactions may include unusual or unique items as closing costs. In the United States, Federal law requires that all residential transactions financed by a mortgage have all closing costs documented in detail upon the standard HUD-1 form. This information must be provided to the principals but does not have to be sent to the government. Instead a Declaration or Statement by Buyer and/or Seller is often required to be provided to the government office recording the deed. Form 1099-S may be required to be sent to the United States Internal Revenue Service, but Federal law does not allow a charge for this.

Capital & interest

The most common way to repay a loan is to make regular payments of the capital (also called principal) and interest over a set term. This is commonly referred to as (self) amortization in the U.S. and as a repayment mortgage in the UK. A mortgage is a form of annuity (from the perspective of the lender), and the calculation of the periodic payments is based on the time value of money formulas. Certain details may be specific to different locations: interest may be calculated on the basis of a 360-day year, for example; interest may be compounded daily, yearly, or semi-annually; prepayment penalties may apply; and other factors. There may be legal restrictions on certain matters, and consumer protection laws may specify or prohibit certain practices.

Depending on the size of the loan and the prevailing practice in the country the term may be short (10 years) or long (50 years plus). In the UK and U.S., 25 to 30 years is the usual maximum term (although shorter periods, such as 15-year mortgage loans, are common). Mortgage payments, which are typically made monthly, contain a capital (repayment of the principal) and an interest element. The amount of capital included in each payment varies throughout the term of the mortgage. In the early years the repayments are largely interest and a small part capital. Towards the end of the mortgage the payments are mostly capital and a smaller portion interest. In this way the payment amount determined at outset is calculated to ensure the loan is repaid at a specified date in the future. This gives borrowers assurance that by maintaining repayment the loan will be cleared at a specified date, if the interest rate does not change.

Interest only

The main alternative to capital and interest mortgage is an interest only mortgage, where the capital is not repaid throughout the term. This type of mortgage is common in the UK, especially when associated with a regular investment plan. With this arrangement regular contributions are made to a separate investment plan designed to build up a lump sum to repay the mortgage at maturity. This type of arrangement is called an investment-backed mortgage or is often related to the type of plan used: endowment mortgage if an endowment policy is used, similarly a Personal Equity Plan (PEP) mortgage, Individual Savings Account (ISA) mortgage or pension mortgage. Historically, investment-backed mortgages offered various tax advantages over repayment mortgages, although this is no longer the case in the UK. Investment-backed mortgages are seen as higher risk as they are dependent on the investment making sufficient return to clear the debt.

It is not uncommon for interest only mortgages to be arranged without a repayment vehicle, with the borrower gambling that the property market will rise sufficiently for the loan to be repaid by trading down at retirement (or when rent on the property and inflation combine to surpass the interest rate).

Mortgage insurance is an insurance policy designed to protect the mortgagee (lender) from any default by the mortgagor (borrower). It is used commonly in loans with a loan-to-value ratio over 80%, and employed in the event of foreclosure and repossession.

This policy is typically paid for by the borrower as a component to final nominal (note) rate, or in one lump sum up front, or as a separate and itemized component of monthly mortgage payment. In the last case, mortgage insurance can be dropped when the lender informs the borrower, or its subsequent assigns, that the property has appreciated, the loan has been paid down, or any combination of both to relegate the loan-to-value under 80%.

In the event of repossession, banks, investors, etc. must resort to selling the property to recoup their original investment (the money lent), and are able to dispose of hard assets (such as real estate) more quickly by reductions in price. Therefore, the mortgage insurance acts as a hedge should the repossessing authority recover less than full and fair market value for any hard asset.

Most lenders will offer home buyers loan package which is called an 80-20 which represents the full value of your home or 100% of its value. In doing so they can forgo the MI payment to the bank and put your money into a second loan for 20% of the value and help pay down the principal. Some lenders will offer loans with no MI at 100% value to those clients the qualify via credit score or DTI or dept to income.

There is concern in the US that consumers are often victims of predatory mortgage lending according to CNN. The main concern is that mortgage brokers and lenders, sometimes while operating legally, are dishonestly finding loopholes in the law to obtain additional profit.

Some examples of predatory mortgage lending are:

• Encouraging applicants to include false information.
• Asking borrowers to leave signature lines blank.
• Failing to include Good Faith Estimates, Special Information Booklet, Truth in Lending and Hud-1 Settlement statement.
• Convincing borrowers to refinance a loan several times and each time increasing monthly payments or amounts owed.
• Loaning amounts higher than the value of the home.
• Not explaining unexpected costs at the settlement.
• Balloon loans: after a series of low payments the entire loan balance is due in a large lump sum.

Another unethical practice involves inserting hidden clauses in contracts in which a borrower will unknowingly promise to pay the broker or lender to find him or her a mortgage whether or not the mortgage is closed. Though regarded as unethical by the National Association of Mortgage Brokers, this practice might within the bounds of the law, depending on the circumstances. Often a dishonest lender will convince the consumer that he or she is signing an application and nothing else. Often the consumer will not hear again from the lender until after the time expires and then the consumer is forced to pay all costs. Potential borrowers may even be sued without having legal defense.

Foreclosure is the legal proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property (immovable property) due to the owner's failure to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". Commonly, the violation of the mortgage is a default in payment of a pleading note, secured by a lien on the property. When the process is complete, it is typically said that "the lender has foreclosed its mortgage or lien."

The mortgage holder can usually initiate foreclosure anytime after a default on the mortgage. Within the United States, there exist several types of foreclosure. Two are widely used, with the rest being possibilities only in a few states.

The most important type of foreclosure is foreclosure by judicial sale. This is available in every state and is the required method in many. It involves the sale of the mortgaged property done under the supervision of a court, with the proceeds going first to satisfy the mortgage, and then to satisfy other lien holders, and finally to the mortgagor. Because it is a legal action, all the proper parties must be notified of the foreclosure, and there will be both pleading and some sort of judicial decision, usually after a short trial.

The second type of foreclosure, foreclosure by power of sale, involves the sale of the property by the mortgage holder not through the supervision of a court. Where it is available, foreclosure by power of sale is generally a more expedient way of foreclosing on a property than foreclosure by judicial sale. The majority of states allow this method of foreclosure. Again, proceeds from the sale go first to the mortgage holder, then to other lien holders, and finally to the mortgagor.

Other types of foreclosure are only available in limited places and are therefore considered minor methods of foreclosure. Strict foreclosure is one example. Under strict foreclosure, when a mortgagor defaults, a court orders the mortgagor to pay the mortgage within a certain period of time. If the mortgagor fails, the mortgage holder automatically gains title, with no obligation to sell the property. Strict foreclosure was the original method of foreclosure, but today it is only available in a few states, such as Connecticut, New Hampshire and Vermont.

A reverse mortgage (known as lifetime mortgage in the United Kingdom) is a loan available to seniors (62 and over in the United States), and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner's obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (i.e. into aged care).

In a typical mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after 30 years the mortgage is paid in full and the property is released from the lender. In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, then the debt on the property increases each month.

If a property has increased in value after a reverse mortgage is taken out, it is possible to acquire a second (or third) reverse mortgage over the increased equity in the home. But in certain countries (including the United States), a reverse mortgage must be the first and only mortgage on the property.

To qualify for a reverse mortgage in the United States, the borrower must be at least 62 years of age. There are no minimum income or credit requirements, but there are other requirements and homeowners should make sure that they qualify for the loan before they invest significant time or money into the process. For most reverse mortgages, the money can be used for any purpose; however, the borrower must pay off any existing mortgage(s) with the proceeds from the reverse mortgage and, if needed, additional personal funds. A pending bankruptcy that has not been finalized may, however, slow the process. Some types of dwellings, such as lower-value mobile homes, do not qualify. Before borrowing, applicants must seek free financial counseling from a source that is approved by the Department of Housing and Urban Development (HUD). The counseling is a safeguard for the borrower and his/her family, to make sure the borrower completely understands what a reverse mortgage is and how one is obtained.

In finance, negative amortization, also known as NegAm, is an amortization method in which the borrower pays back less than the full amount of interest owed to the lender each month. The shorted amount is then added to the total amount owed to the lender. Such a practice would have to be agreed upon before shorting the payment so as to avoid default on payment. Also known as deferred interest or Graduated Payment Mortgage (GPM).

Negative amortization only occurs in loans in which the periodic payment does not cover the amount of interest due for that loan period. The result of this is that the loan balance (or principal) increases by the amount of the unpaid interest. The purpose of such a feature is to increase affordability, or add payment savings and payment flexibility to a loan.

Neg-Ams also have what is called a recast period and recast principal balance cap based on Federal and State legislation. The recast period is usually 60 months (5 years). The recast principal balance cap (also known as the "neg am limit") is usually up to a 125% increase of the amortized loan balance over the original loan amount. States and lenders can offer products with lesser recast periods and principal balance caps; but cannot issue loans that exceed their state and federal legislated requirements under penalty of law.

Starting rates on negative amortization or minimum payment option loans can be as low as 1%. This is the payment rate, not the actual interest rate. The payment rate is used to calculate the minimum payment. Other minimum payment options include 1.95% or more.

FHA loan - Relating to the U.S. Federal Housing Administration

FHA loan is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration. The loan may be issued by federally qualified lenders.

FHA loans have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. The program originated during the Great Depression of the 1930s, when the rates of foreclosures and defaults rose sharply, and the program was intended to provide lenders with sufficient insurance. Some FHA programs were subsidized by government, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers.

FHA does not make loans. Rather, it insures loans made by private lenders. The first step in obtaining an FHA loan is to contact several lenders and/or mortgage brokers and ask them if they originate FHA loans. As each lender sets their own rates and terms, comparison shopping is important in this market.

Second, the potential lender assesses the prospective home buyer for risk. The analysis of one's debt to income ratio enables the buyer to know what type of home can be afforded based on monthly income and expenses and is one risk metric considered by the lender. Other factors, e.g. payment history on other debts, are considered and used to make decisions regarding eligibility and terms for a loan.

VA loan - Relating to the U.S. Veterans Administration.

A VA loan is a mortgage loan in the United States guaranteed by the Veterans Administration. The loan may be issued by qualified lenders.

The VA loan was designed to offer long-term financing to American veterans or their surviving spouses (provided they do not remarry).

The VA loan allows veterans 100% financing without private mortgage insurance or 20% second mortgage. A VA funding fee of 0 to 3.3% of the loan amount is paid to the VA and is allowed to be financed. In a purchase, veterans may borrow up to 100% of the sales price or reasonable value of the home, whichever is less. In a refinance, veterans may borrow up to 90% of reasonable value, where allowed by state laws.

As of January 1st, 2006, the maximum VA loan amount with no down payment is $417,000 and can be as high as $625,500 in certain high cost areas. VA also allows the seller to pay all of the veteran's closing cost as long as the cost do not exceed 6% of the sales price of the home.