If you want to buy a house, you must decide whether to apply for a conventional or government-backed home loan. Each comes with advantages and drawbacks, so if you qualify for both, you’ll have to weigh the pros and cons to determine the most strategic financial move. To help you get started, here’s what you should know about the two types. 

What’s a Conventional Home Loan?

Conventional home loans are those that aren't insured by the government. As such, they have stricter qualification requirements and typically require larger down payments. If you have a good credit score, earn a consistent income, and your debt to income ratio is less than 45%, there's a good chance you’ll qualify for a conventional loan.

Typically, mortgage lenders require 20% down for these kinds of loans; however, it may be possible to put less down if you purchase private mortgage insurance (PMI). PMI will increase your total housing costs, but it will allow you to obtain ownership without making a sizable cash deposit. 

What’s a Government-Backed Home Loan?

As the name implies, government-backed home loans are those that are insured by the government. As such, there’s no need to purchase PMI even if you put less than 20% down. Two of the most popular federal loans are VA and FHA. VA loans are for members of the military, and they're backed by the Department of Veterans Affairs. FHA loans, on the other hand, are insured by the Federal Housing Administration. They’re ideal for first-time homebuyers who can’t afford to put 20% down. It may be possible to take out an FHA loan with as little as 3.5% down. 

While government loans are available to those with less than perfect credit, they typically come with higher interest rates. For this reason, they're only recommended for those who won't be able to qualify for a conventional loan within a reasonable period of time. If you can save up a sizable down payment and repair your credit over the course of a single year, for example, taking out a conventional loan could save you thousands. If, on the other hand, it makes sense for your family to buy now but you won't qualify for a non-government mortgage, taking out an FHA loan may make the most sense. 

To see whether you qualify for a conventional or government-backed home loan, turn to Deuane Woodard, a loanDepot® loan officer. If you’re looking to buy property in the Dallas-Fort Worth area, this seasoned professional can help you secure the financing you need. Based in Richland Hills, TX, Deuane has more than 30 years of experience in the financial field and assists clients with both conventional and government loans. To start your application, reach out online or call (817) 875-6043.