When you apply for a mortgage loan, you can qualify for either a government- or privately-backed loan, depending on your financial profile. While both allow you to purchase a home, there are some key differences between the two.
Government-Backed Loans Are Insured By The Federal Government
Government-backed loans are insured by the federal government, which means if you default on your loan, the lender is protected. Privately-backed conventional mortgages are offered by private mortgage lenders like banks, which aren’t secured or backed by the federal-government, making them a riskier investment for lenders.
Government-Backed Loans Can Qualify With A Lower Credit Score
Because they are considered less of a risk than private loans, government-backed loans allow for borrowers to qualify with a lower minimum down payment and credit score. Less risk also means more favorable terms, including lower interest rates.
However, because of this, government-backed mortgages have stricter qualifications than privately-backed conventional loans.
Privately-Backed Loans Often Have Less Paperwork
Because they typically have fewer restrictions, privately-backed mortgage loans often have less paperwork than government-backed ones. This means that the loan can be created in a matter of days, allowing the borrower to close on the property faster.
Government-Backed Loans Can Purchase Rural Properties
There are many government programs designed to help people purchase rural properties and farms with the goal of supporting farmers and rural revitalization. For example, USDA loans/programs provide low to middle-income rural Americans’ homeownership opportunities.
Find The Best Property And Loan For You
Not sure where to start in finding the best property and mortgage loan for your needs? Trust the local experts at Merchant of Homes. We will work with you to manage your expectations when buying a home or property but help you find what you are looking for and a price you can afford.
As always, work closely with your lender to decide the best program for you.