Conventional Loan Alternatives: What Are Other Types of Mortgages?
A conventional loan could help you snag a great deal on a mortgage — as long as you qualify.
If you don’t meet the eligibility requirements for a conventional loan — or you don’t think it’s the right fit — then you should look into different types of home loans and explore alternative mortgage options.
Here’s a look at some of the biggest differences between conventional loans and government-backed mortgages:
Conventional Loans vs. Other Types of Mortgages
|Type of requirement||Conventional loan||FHA loan||VA loan||USDA loan|
|Minimum down payment||5%, or 3% under special loan programs||3.5%||None||None|
|Minimum credit score||620||500||None||None, but a score of 640 or higher is preferred|
|Mortgage insurance||Required if you’re putting less than 20% down||Required for all loans||One-time VA funding fee instead of mortgage insurance||Upfront and annual guarantee fees instead of mortgage insurance|
Conventional Mortgages: Conforming vs. Nonconforming Loans
Conventional Loans vs. FHA Loans
FHA loans are backed by the Federal Housing Administration. This type of loan is geared toward people who don’t have good credit and can only afford a small down payment. However, if your credit score is on the higher end and you have at least 10% to 15% of the home purchase price saved for a down payment, then an FHA loan could wind up being more expensive for you than a conventional loan.
Conventional Loans vs. VA Loans
VA loans are guaranteed by the Department of Veterans Affairs. This type of loan is intended for eligible service members, veterans, and their surviving spouses. While VA loans require no down payment and no mortgage insurance, not everyone can qualify for this type of mortgage. Conventional loans, on the other hand, are widely available.
Conventional Loans vs. USDA Loans
USDA loans are backed by the Department of Agriculture. This type of loan can help low-income borrowers buy property in eligible rural areas. Unlike conventional loans, USDA loans may only be used in certain parts of the country. They also come with additional requirements, such as limits on the size and value of the property.
FAQ: Alternatives to Conventional Loans
Here are the answers to some frequently asked questions about conventional loans.
FHA loans are easier to qualify for because they allow a lower credit score and a smaller down payment compared with conventional loans. It’s also easier to get USDA or VA loans, but only if you’re eligible.
Conventional loans typically cost less than FHA loans, but you need to be in a good financial position. If you’re not in an ideal place, but you want to become a homeowner sooner rather than later, a government-backed loan could be worth looking into.