Mortgage Loan Face-Off: Conventional Loans vs. Government Backed Loans


LoansGovernment backed loans and conventional loans can significantly help you in finally getting your own home. But, which one is the best home loan for you? Here are their benefits and drawbacks, according to Direct Mortgage Loans.

What is a Conventional Loan?

A conventional loan mortgage is a loan that isn’t government-insured, which means lenders shoulder the risk if you default on your loan. It can either be conforming or non-conforming. These types of loans come with varying terms and requirements and can offer adjustable or fixed interest rates.

The biggest benefit of conventional loans is that they are much easier and faster to process and can build home equity quicker since their down payments are generally higher. On the other hand, you’ll need a stellar credit history to obtain a low interest rate and you may be required to shell out a down payment of up to 20%.

What is a Government Back Loan?

Government backed loans such as the Veterans Affair (VA) loan or Federal Housing Administration (FHA) loan, are either partially or fully insured by the federal government. With these loan types, the government guarantees lenders that it will reimburse some or the full loan amount to lenders if a borrower defaults on a loan. These mortgage loans are ideal for those who have a less than stellar credit history and are having difficulty qualifying for conventional loans.

When compared to conventional loan mortgage packages, government backed mortgages don’t require you to have a perfect credit history and offer down payments as low as 3.5%. But, they can come with higher interest rates and a strict requirement to get mortgage insurance.

Which Loan is Right For You?

Both loans can make perfect sense depending on your personal circumstances. When you factor in the mortgage insurance for government backed loans, it can still come out as more affordable when you obtain a low mortgage rate or lender credit. But, if you’re averse to paying mortgage insurance, you can make peace with a higher interest rate on a conventional mortgage. Consult with a reputable lender to check if you can qualify for both loan types and to determine the best deal for you.

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