Conventional vs. Government-Backed Loans: Which Should You Choose?
Most mortgages fall into one of two broad categories: conventional loans, which aren't insured or guaranteed by a government agency, and government-backed loans — FHA, VA, and USDA — which are. The right category depends less on which sounds better and more on a buyer's specific credit, down payment, and eligibility situation. What makes a loan "conventional" Conventional loans are originated by private lenders and typically follow underwriting guidelines set by Fannie Mae or Freddie Mac (for loans that will be sold on the secondary market) rather than a government agency's rules. They generally require stronger credit and a higher down payment than FHA loans, though down payments as low as 3% are available on some conventional programs for qualifying buyers. Why government-backed loans exist FHA, VA, and USDA loans each solve a different access gap: FHA — lower credit score and down payment flexibility for a broad range of buyers. VA — no down payme...