Buying a home is perhaps the largest investment you’ll make in your lifetime, so it’s important to choose the right mortgage from the start. You have several types of loans to choose from, including a conventional mortgage, and each has a different set of requirements.
A conventional mortgage is a home loan that isn’t guaranteed or insured by the federal government and conforms to the loan limits set forth by Freddie Mac and Fannie Mae. You can get a conventional loan at a fixed or adjustable rate.
Conventional loans also require a larger down payment, so those buyers tend to have a more secure financial standing and are less likely to default. The larger down payment also means lower monthly payments. Plus, with the ever-increasing mortgage insurance premiums on FHA loans, payments for conventional loans can be much more manageable in comparison.
Three other options — FHA, VA and USDA loans — are backed by the federal government. Loans guaranteed by the Federal Housing Administration aim to make buying homes more affordable for low- to middle-income families by offering low down payments. VA loans are guaranteed by the U.S Department of Veterans Affairs and are available to active military and veterans only. Finally, USDA loans are backed by the U.S. Department of Agriculture and are geared toward buyers of rural properties.