Wading through the acronyms of home financing can be bewildering at best.  Here is a basic guide to different mortgage loans and what they entail.

FHA-Insured Loans:
The Federal Housing Administration (FHA), which is a part of the US Department of Housing & Urban Development (HUD), operates several low-down payment mortgage insurance programs that buyers can use to purchase a home. FHA-insured loans generally require the buyer to make a three percent cash contribution to the down payment and closing costs. FHA-insured loans are available from most of the same lenders who offer conventional loans.

The maximum FHA-insured loan amount for a one-family home ranges from about $172,632 to $312,895 depending on local area median home prices and other factors. Your lender can provide more details about FHA-insured mortgages and the maximum loan amount in your area, or find information on FHA's loan limits directly from HUD's website.
 
VA-Guaranteed Loans:
If you are a veteran of military service, reservist, or on active military duty, you may be able to obtain a loan guaranteed by the Department of Veterans Affairs (VA), which requires little or no down payment. Get more information about the VA Loan Guaranty program at www.homeloans.va.gov.
 
State Housing Finance Agency Loans:
State Housing Finance Agencies (HFA) provide loans to first-time homebuyers and veterans of military service who have not previously received a loan through an HFA, often at below-market interest rates. Program availability and eligibility requirements vary from state to state. Check with the Washington State Housing Finance Commission at www.wshfc.org
 
Adjustable Rate Mortgages (ARMs):
With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. But with an ARM, the interest rate changes periodically, usually in relation to a specific index such as a cost of funds rate or the Treasury bill rate. Payments may go up or down accordingly. Adjustable-rate mortgages (ARMs) are characterized by the time frame for adjustment, such as one year, or three, five, seven or ten years. Hybrid ARMs have grown in popularity because they may offer a favorable fixed rate of interest for a time, such as three, five, seven or ten years, after which the loan becomes a one-year ARM.

Lenders generally charge lower initial interest rates for ARMs and Hybrid ARMs than for fixed-rate mortgages. This makes the ARM easier on your pocketbook at first than a fixed-rate mortgage for the same amount. It also means that you might qualify for a larger loan because lenders sometimes make this decision on the basis of your current income and the anticipated monthly payments for the few year or two. Moreover, if interest rates remain steady or move lower, your ARM could be less expensive over a long period than a fixed-rate mortgage.

Against these advantages, you have to weigh the risk that an increase in interest rates would lead to higher monthly payments in the future. It's a trade-off: you get a lower rate with an ARM in exchange for assuming more risk.
 
Here are some things to consider with an ARM or a Hybrid ARM:
-    Is my income likely to increase enough to cover higher mortgage payments if interest rates go up?
-    How long do I plan to own this home? (If you plan to sell soon, rising interest rates may not present the risk they do if you plan to own the house for a long time.)
 -   Can my payments increase even if interest rates generally do not increase?
-    What index will be used to adjust the mortgage rate? Ask the lender for a table showing movements in the index over the previous ten years to see how your mortgage payments would have changed.
-    How often will the interest rate be adjusted? Every year? Three years? Five years? The longer the adjustment period, the better you will be able to plan your future loan cost.
-    What is the initial mortgage interest rate? Does it include a special discount or "teaser?" If so, you could face a large increase in your monthly payments when the interest rate is adjusted for the first time.
-    What is the margin on the interest rate? The margin is the amount that the lender adds to the index rate to calculate your mortgage rate. For instance, if the index rate is seven percent and the margin is two percent, your overall interest rate would be nine percent.
-    What limits or caps have been placed on the adjustments? One of the most important items to discuss with your lender is the maximum amount that your mortgage rate can increase in any single adjustment period and over the life of the loan. Find out the "worst case" situation in the event of a sharp increase in your index rate.
-    Is the loan convertible? If so, is there a cost to convert? Convertibility allows you to change your ARM to a fixed-rate loan at some designated time in the future.
-    Is there a prepayment penalty? If you refinance your loan with a new loan, you may be assessed a fee.

Thanks to the Master Builders Association for submitting this information.