Because eligibility for a conventional loan may be tougher than for a government-backed loan, both you and your lender may need to work closely together to find the right loan for your situation.

Features

• Down payments as low as 3%
• Not insured by the government
• Private Mortgage Insurance (PMI) may be required if less than 20% down payment
• Higher credit scores can result in a lower interest rate
• Less restrictive appraisal and property requirements than government-insured FHA, VA, or USDA loans
• Term lengths can vary between 10 and 30 years

Non-Conventional Loans

Government agencies like the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA), and the Department of Veterans Affairs (VA) offer insurance or guarantees for non-conventional loans. The FHA, part of the Department of Housing and Urban Development, insures residential mortgage loans made by private lenders, making it easier for borrowers to qualify. The FmHA provides financing to farmers and other qualified borrowers who might struggle to secure traditional loans. VA loans are specifically for veterans and military members, often featuring lower down payments. These non-conventional loans provide crucial support, making homeownership more accessible to a broader range of individuals and families.

Conventional Loans

Conventional mortgages are loans not guaranteed or insured by government agencies like the FHA, FmHA, or VA. These mortgages adhere to guidelines set by Fannie Mae, the Federal National Mortgage Association, a corporation created by the federal government to buy and sell conventional mortgages. Fannie Mae establishes the maximum loan amount and borrower requirements, ensuring standardized lending practices.

Typically, a conventional mortgage is a 30-year fixed-rate loan, meaning it has a consistent interest rate for the entire 30-year term. These mortgages usually require at least a 20 percent down payment. For instance, if a house costs $200,000, the lender will finance 80 percent of that amount, or $160,000, while the borrower must provide $40,000 in cash.

Conventional mortgages often offer better interest rates compared to non-conventional loans, making them an attractive option for those who can meet the 20 percent down payment requirement. However, borrowers who cannot afford a 20 percent down payment can still obtain a mortgage. By putting down a smaller amount and potentially accepting a higher interest rate, they can secure financing through a non-conventional mortgage. This flexibility ensures that various financial situations can be accommodated in the journey to homeownership.