Conventional Loan Alternatives: What Are Other Types of Mortgages?

A loan officer shows some alternative mortgage options to a client.l

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 requirementConventional loanFHA loanVA loanUSDA loan
Minimum down payment5%, or 3% under special loan programs3.5%NoneNone
Minimum credit score620500NoneNone, but a score of 640 or higher is preferred
Mortgage insuranceRequired if you’re putting less than 20% downRequired for all loansOne-time VA funding fee instead of mortgage insuranceUpfront 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.

What type of loan is easiest to get?

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.

Is a conventional loan better?

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.

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