It’s time for a home loan, but you’re not sure what type of loan works best for you. There are two main types of loan: government and non-government (conventional). We often talk about loan types, and here you will see how those are broadly categorized.

Non-government (conventional) loans

Conventional loans, which are common, are non-government loans. This simply means that this type of loan is not sponsored by the government, so the lender themselves assumes the risk of lending money to you rather than the government. Because these loans are privately sponsored, they do tend to have more rigid credit requirements and down payment requirements. This is often where you see the 20% down payment suggestion and PMI (private mortgage insurance) exists for this loan type.

Within convention loans, you may see the terms “conforming” and “jumbo”. A conforming loan is any conventional loan under $715,000 (as of 2023). A jumbo loan is any loan above $715,000. The main difference between these two types of conventional loans is stricter standards due to the higher loan amount. This can be confusing, but it comes down to the amount of the loan.

Government loans

Government loans are sponsored by the government. FHA, USDA, and VA loans are all government-sponsored loans, which means the government assumes the risk of lending you money. Most often, government loans have lower credit requirements, as well as lower down payment requirements. Some government loans require 0 down payment (VA), while some loans require lower down payments, like the FHA loan that requires 3.5%.

While this provides a broad idea of the difference between conventional and government loans, you may have more specific questions. Your loan officer is there to guide you through the entire process. They will provide you with all of the tools you need to choose the loan type that works best for you. Every situation is unique and has different requirements, but your lender is there to assist you through every step of the process.

Government vs. Non-Government Loans