There are an infinite amount of loan types and options for today’s borrowers, which brings up the age-old question: “Which mortgage is right for me?” Fixed or adjustable rate? 30-year or 15-year term? Government-backed or conventional? Buying a home is a huge financial commitment, and you should explore what option will fit your budget and future plans. When looking for the right mortgage loan, you will essentially be choosing loan options within two different types of financing: government-backed or conventional financing.
There are three types of government-backed loans: FHA, VA and USDA. Government financing aims to assist homebuyers who may not otherwise qualify for conventional financing. Government loans typically allow little to no money down, gifted down payments and have more flexible credit guidelines.
A conventional loan is financing that is not insured or guaranteed by the federal government. A conventional loan adheres to guidelines set by Fannie Mae and Freddie Mac. The following are ways that conventional loans differ from government loans:
- Require minimum 5 percent down payment
- Interest rate varies based on credit score and loan term
- Mortgage insurance premiums vary based on down payment amounts
Conventional loans also give borrowers the option of having a fixed or adjustable rate mortgage, as well as choosing a loan term.
Loan programs are not one-size-fits-all products. Talk to one of our Mortgage Bankers about which loan is the right option for you.
Looking for more information on buying a home? Our Mortgage 101 Handbook is the ultimate guide for First Time Home Buyers.