Are you looking for home mortgage loan?

Are you looking for home mortgage loan?

If you are then you have come to the right page because it is vital to understand the meaning, definition, and most importantly, the differences between an FHA, conventional, and VA loan.

Before we talk about their differences, let us take a look at certain aspects that are common or similar between them. This will help you understand the differences better. All three of them are insured by the lending bank or the financial institution concerned who are in turn approved by the government.

Conventional Loan

The key difference between a conventional loan and a FHA or VA loan is that the former is not insured, backed, or guaranteed by the federal government, however the latter two are. So what does it mean for you? Unlike FHA and VA loans, conventional loans will not carry any guarantee for the lender of the loan in case you fail to repay the loan back to the lender.

This is one of the main reasons why you are asked to pay PMI (private mortgage insurance) upon receiving a conventional loan if you have not paid more than 20 percent of the down payment. This way, in case you fail to make good on your payment, the mortgage insurance company will pay the lender and recover the money from you. This is an alternative arrangement since the loan is not backed by the federal government itself.

  • When you have required rating on your credit
  • When you have a steady income so you can repay the loan
  • When you can afford to pay the down payment which is generally a larger amount than the installments

Conventional loans are governed by Federal Mortgage National Association and Federal Home Loan Mortgage Corporation. They are available to everyone and anyone, but are difficult to get approved for due to their unsecure nature.

Lack of a government backing makes them more risky and hence, lenders are more careful about whom they approve and whom they do not. Credit and income requirements for conventional loans are also set higher and generally more paperwork is required to be furnished to get approved. Read more