Conventional vs. Government Loans

You’ve heard the terms before, but do you really know the difference between conventional and government loans? We’ll break it down for you here, as we explore the various types of loans and the differences of each. Let’s start with the basics: FHA, VA AND USDA mortgages are government loans. All other mortgages are conventional loans.

Conventional loans

Conventional loans come in two types: conforming or non-conforming. Conforming mortgages offer a lower rate, but must conform to specific maximum limits and guidelines. Jumbo loans are an example of non-conforming, and are issued for amounts above the conforming loan limits. Non-conforming conventional loans will generally have a higher interest rate, but are a sensible option for buyers who aren’t as confined by budget constraints.

Now, let’s dive into some of the different types of government loans available:

FHA Loans

FHA loans are administered by the FHA, part of the US Dept of Housing and Urban Development. FHA loans typically adhere to lower down payment requirements and are easier to qualify for than conventional loans. These loans are generally attractive to first-time home buyers, lower income borrowers, and those with limited down payments because of the aforementioned benefits.

VA Loans

VA loans are also made by private lenders, but are not guaranteed by the US Dept of Veteran Affairs (VA). While the VA does determine your eligibility, you must apply through a private lending institution to obtain a VA loan. Generally, its easier to qualify for a VA loan than a conventional loan, the terms of the loan are usually more desirable, and it often doesn’t require the buyer to put money down. For qualified applicants, a VA loan is a smart choice for prospective homebuyers.

USDA Loans

USDA loans are guaranteed by the US Dept of Agriculture for rural properties. To qualify for a USDA loan, you and the property you intend to purchase must meet certain requirements: the most prominent of which are geographic requirements. Although the eligibility criteria tends to be more stringent than other loan types, buyers who purchase a home in a rural area as defined by USDA can enjoy favorable interest rates, as well as down payment and closing cost assistance. You can always ask one of our experienced loan officers what areas near you fall within the boundaries for a USDA loan.

Which Loan Is Best For You?

While this is an overview of some of the most common loans options, there are so many others, as well as financing programs that cater to buyers in specific regions, career fields, or financial needs. Not sure where to begin? Take this quick assessment to find out which mortgage option may be best suited for your particular needs!