Quick answer
Conventional loans are not federally insured or guaranteed. FHA insures approved-lender loans, VA guarantees eligible-borrower loans, and USDA offers guaranteed and direct rural-housing programs. The exam also distinguishes fixed, adjustable, amortized, balloon, construction, bridge, reverse, home-equity, package, blanket, and open-end loans. Program approval and current costs always depend on the actual rules.
Loan types come up throughout the real estate exam, and financing alone is 10 percent of the national portion. Georgia then adds its own wrinkle, because the instrument securing all of these here is a security deed rather than a mortgage, which the security deed guide covers.
Decision rule. First identify who supplies the credit and who, if anyone, insures or guarantees the lender. Next identify the repayment pattern, rate structure, collateral, and eligibility facts. Do not infer a current down payment, credit score, insurance charge, or assumption result unless the facts support it.
Conventional loans
A conventional loan has no FHA insurance or VA or USDA guarantee. It may be conforming, meaning it meets applicable Fannie Mae or Freddie Mac purchase standards, or nonconforming. A jumbo loan exceeds the applicable conforming limit or otherwise falls outside standard agency requirements. Private mortgage insurance commonly protects the lender when a conventional first mortgage has a high loan-to-value ratio, but the product and cancellation rights depend on the loan and current law.
Government loans
Use this comparison to identify who insures or guarantees the lender and who can qualify. Do not memorize a lender's current minimum credit score or debt ratio as if PSI published it. Those underwriting overlays and program details can change.
| Program | Federal role | Typical exam distinction | Eligibility focus |
|---|---|---|---|
| Conventional | No federal insurance or guarantee | PMI may apply at higher LTV | Borrower, property, and lender standards |
| FHA | FHA insurance protects the lender | Upfront and annual mortgage insurance premiums | FHA borrower, occupancy, property, and lender rules |
| VA | VA guarantees part of the approved loan | No monthly mortgage insurance; funding fee can apply | Eligible service members, veterans, and qualifying survivors |
| USDA guaranteed | USDA guarantees an approved-lender loan | Eligible borrowers may finance without a down payment | Income, property, occupancy, location, and program rules |
Two distinctions the exam repeats.
Insured against guaranteed. FHA insures the lender against loss. VA guarantees a portion of the loan. Both protect the lender rather than the borrower, which surprises people. Mortgage insurance is not life insurance and does not pay the borrower anything.
PMI against MIP. PMI is private coverage associated with qualifying conventional loans and has cancellation or termination rules under the loan and federal law. FHA MIP is the program's upfront and annual mortgage-insurance charge. How long annual MIP lasts depends on the loan term, original loan-to-value ratio, and applicable FHA rules, so "FHA MIP is always for life" is not a safe universal rule.
Exam trap
A question describes an eligible veteran using a VA purchase loan and asks about monthly mortgage insurance. VA does not require monthly mortgage insurance. A funding fee may apply, can often be financed, and has exemptions. Zero down is a program feature, not a promise that every price, appraisal, entitlement, lender, or closing-cost situation produces zero cash due.
Conforming, jumbo and the secondary market
A conforming loan meets the standards Fannie Mae and Freddie Mac will buy, including a loan limit. A loan above the limit is a jumbo and stays outside those agencies, which usually means stricter terms.
The secondary market is where lenders sell loans to free up capital to lend again. Fannie Mae, Freddie Mac and Ginnie Mae operate there. The exam wants one idea from this: the secondary market provides liquidity. It does not lend to consumers, and a borrower never deals with it directly.
Repayment types
A fixed-rate, fully amortized loan keeps its interest rate and scheduled principal-and-interest payment structure for the term, then reaches a zero balance. An adjustable-rate mortgage, or ARM, changes the rate using an index plus a margin, subject to its adjustment schedule and caps. A partially amortized loan leaves a balloon balance at maturity. A term or straight loan may require periodic interest with principal due at maturity. Negative amortization occurs when scheduled payments do not cover accrued interest and the unpaid amount is added to principal.
- The index is the market measure the rate follows. It moves.
- The margin is the lender's fixed add-on. It does not move.
- Caps limit the change per adjustment and over the life of the loan.
Three clauses show up constantly:
- Acceleration. On default, the lender can demand the whole balance now. Without it, the lender could only sue for missed payments.
- Alienation, also called due on sale. The balance comes due if the property is sold, which is what makes most modern loans non-assumable.
- Prepayment penalty. A charge for paying off early. Restricted on many loan types.
Assumption matters because FHA and VA loans can generally be assumed with lender approval, while conventional loans with a due-on-sale clause usually cannot. A VA seller who lets a non-veteran assume without a substitution of entitlement keeps their entitlement tied up, which is a real consequence the exam sometimes reaches for.
Specialty loans
- A construction loan funds building in draws after inspections and commonly carries short-term interest on disbursed funds before permanent financing.
- A bridge loan supplies short-term funds while a borrower waits for another property or financing event.
- A reverse mortgage lets an eligible older homeowner convert equity to advances without ordinary monthly principal-and-interest payments, while taxes, insurance, occupancy, condition, and maturity events still matter.
- A home-equity loan usually advances a lump sum with installment repayment. A HELOC is revolving credit up to a limit, often with a draw period followed by repayment.
- A blanket mortgage covers more than one parcel and can include a partial-release clause. A package mortgage covers real and specified personal property.
- An open-end mortgage secures present and qualifying future advances up to the agreed limit.
Owner financing is a separate structure, covered in the owner-financing lesson. Use the federal lending laws lesson to separate TILA, RESPA, ECOA, and TRID.
Amortization, points and LTV
Amortization means scheduled payments reduce the debt over time. On a standard level-payment fixed-rate loan, each payment covers accrued interest and applies the remainder to principal. Early payments contain more interest; later payments contain more principal.
A discount point is one percent of the loan amount, paid upfront to lower the rate. Points paid on a $310,000 loan cost $3,100 each.
Loan to value is the loan divided by the value base specified in the question or program. For a purchase, lenders commonly use the lower of price or appraised value. If a house is priced at $400,000 but appraises at $385,000, an 80 percent LTV loan under that rule is 80 percent of $385,000, not of $400,000.
Worth knowing
A borrower's ratios matter as much as the program. The front-end ratio compares housing cost to gross income. The back-end ratio compares total debt to gross income. Questions give you both and ask which one disqualifies the buyer.
Continue through financing instruments and notes, basic financing concepts, mortgage underwriting, and loan clauses. The glossary entries for loan to value and discount point carry the exam's phrasing, and the calculators run ratios and payment figures.
Check yourself
1. Which coverage may be associated with a high-loan-to-value conventional first mortgage?
Show the answer
Answer: B. PMI is private coverage associated with qualifying conventional loans and protects the lender. Whether it is required, how it is structured, and when it can end depend on the loan and applicable law. A down-payment percentage alone does not justify a universal claim.
2. A home is priced at $420,000 and appraises at $400,000. The lender will lend at 80 percent loan to value. What is the maximum loan?
Show the answer
Answer: B. Loan to value uses the lesser of price or appraised value. 80 percent of $400,000 is $320,000, and the buyer must cover the gap.
3. Which clause makes the entire loan balance due if the borrower sells the property?
Show the answer
Answer: C. The alienation clause, also called due on sale, is triggered by transfer of the property. Acceleration is triggered by default.
4. A borrower pays two discount points on a $285,000 loan. What is the cost?
Show the answer
Answer: B. A point is one percent of the loan amount. One point is $2,850, so two points cost $5,700.
FAQ
Does FHA lend the money?
FHA ordinarily insures loans made by approved lenders rather than advancing the mortgage funds itself. VA commonly guarantees loans made by private lenders and also administers limited direct-loan programs, including the Native American Direct Loan program. USDA operates both guaranteed and direct rural-housing programs. On the exam, identify the specific program described instead of assuming every federal housing program works the same way.
Can mortgage insurance end?
It depends. Borrower-requested cancellation and automatic termination rules can apply to qualifying conventional PMI. FHA annual MIP duration depends on the applicable program rules, original LTV, and term. Read the loan's current requirements rather than relying on one blanket threshold.
What is the difference between prequalification and preapproval?
Prequalification is an informal estimate based on stated information. Preapproval involves verified documentation and a credit check, and it carries far more weight with a seller.
Does Georgia change any of this?
The federal program framework applies nationwide, but loan limits, borrower and property eligibility, lender overlays, location requirements, and current costs can vary. Georgia adds its own real-property law, including the common use of a security deed and an intangible recording tax on qualifying notes.
Sources
- CFPB, explore mortgage loan options
- HUD, FHA mortgage insurance programs
- U.S. Department of Veterans Affairs, VA-backed purchase loans
- U.S. Department of Veterans Affairs, Native American Direct Loan program
- USDA Rural Development, Single Family Housing Guaranteed Loan Program
- USDA Rural Development, Single Family Housing Direct Home Loans
- Georgia Department of Revenue, intangible recording tax
- PSI Georgia Candidate Information Bulletin, 7/1/2026
Recommended next lesson
Continue with PMI vs FHA MIP. It separates private conventional-loan coverage from FHA mortgage insurance and shows why a blanket cancellation rule is a common distractor.