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Conventional vs. Government-Backed Loans
What is the difference between a Conventional and a Governments backed loan?
The most common types of loans are conventional and government backed. A conventional loan is backed by bankers, that is to say they are secured by the lender. A government-backed loan is secured or backed by the government; however, it is still a lender who makes the loan. To make loans more affordable, the government got involved in the loan business and decided to back home loans. The two most common are the Federal Housing Authority (FHA) loans, which are insured by the federal government and Veterans Administration (VA) loans, which are guaranteed. The lender will generally accept smaller down payments with these types of loans - about 3% to 5% is common. This can be of enormous benefit to people who do not have a lot of money to put down for a down payment. FHA loan are also assumable so somebody else can take over the loan when you sell. This can be an added attraction to a buyer when you sell your home.
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