Comparing Government Loans And Conventional Mortgages

Comparing Government Loans And Conventional Mortgages:

First-Time Home Buyer Programs

Government-backed loans are insured by federal agencies. This insurance protects the lender if the borrower fails to repay the loan and is meant to encourage lenders to offer mortgages to a wider range of home buyers.

It’s easier to qualify for an FHA loan than for a Conventional loan, which is a mortgage that isn’t’ insured or guaranteed by the federal government.

  • FHA loans allow for lower credit scores than conventional loans, and in some cases, lower monthly mortgage insurance payments.
  • FHA rules are more liberal regarding gifts of down payment money from family, employers or charitable organizations.

Conventional mortgages are offered by many lenders that also offer government-backed loans. Lenders generally view conventional loans as riskier because they’re not guaranteed by the government, so conventional mortgages tend to have tougher requirements.

Mortgages backed by government agencies offer different qualifications that can make them more attractive to some home buyers.

  • Loans guaranteed by the Federal Housing Administration, or FHA loans, aim to make buying homes more affordable for low- to middle-income borrowers, with relaxed lending standards, down payments as low as 3.5% and competitive interest rates.
  • VA loans are guaranteed by the U.S Department of Veterans Affairs and are available only to active service members and veterans. VA loans can have down payments as low as 0%.
  • USDA loans, backed by the U.S. Department of Agriculture, are geared toward properties in areas designated as rural. The USDA also makes direct loans to some low-income borrowers.

Conventional loans aren’t limited to borrowers based on income, location, or military status. Anyone who is able to meet a lender’s standards is eligible for a conventional mortgage.

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