When looking to purchase or a refinance, it is important to understand the difference between Conventional, FHA, VA and USDA loans.
Conventional, FHA, VA and USDA loans are similar because they are all issued by banks and other approved lenders, but there are major differences between these types of loans. The information below will help you understand each option in greater detail so that you can decide which loan is best for you.
When you apply for a home loan or refinance, you can apply for a government-backed loan (like an FHA or VA loan) or a conventional loan (not insured or guaranteed by the federal government). This means that, unlike federally insured loans, conventional loans carry no guarantees for the lender if you fail to repay the loan.
For this reason, if you make less than a 20% down payment on the property, you’ll have to pay for private mortgage insurance (PMI) when you get a conventional loan. The mortgage insurance is in place if you default on the loan, the mortgage insurance company makes sure the lender is paid in full.