Government vs Conventional Loans

Percentages of Loan Types Among Buyers

59%

Conventional

23%

FHA

11%

VA

*4% – Don’t Know | 3% – Other

Conventional Loans

A conventional loan is a loan that is not insured by the government; the lender takes on the risk of losing money in the event that the borrower defaults on the mortgage. Conventional loans (including jumbo loans) offer both adjustable and fixed rates to borrowers, and the loans can be non-conforming or conforming. The rates are usually low, and only have a private mortgage insurance (PMI) requirement if there is less than a 20% down payment on the home. Conventional loans are known for having a speedier loan process, so taking out a conventional loan is a good bet if you need to have your loan quickly. However, conventional loans require a minimum 5% down payment and have stricter credit standards than their government counterparts.

Government Loans

A government-backed loan is insured, either completely or partially, by the U.S. government. The government does not lend money to the borrower; instead, it promises to repay some or all of the money to the lender in the event that the borrower defaults. This reduces the risk for the lender when making a loan.Government loans (FHA, USDA or VA loans) may have higher interest rates and often require the borrower to pay some sort of mortgage insurance. VA loans are a great exception to the rule, but borrowers must have served in the military without dishonorable discharge. Generally, government loans have lower credit score and down payment requirements than conventional loans, and usually have lower closing costs associated with the home purchase. Government loans are therefore a great option for first time home buyers due to their lower qualifying requirements.

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