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When you apply for a mortgage, you'll have to decide between two basic types of loans: a government-backed mortgage and a conventional loan.
Government-backed mortgages were created to promote homeownership by making it more affordable. If you have a low income, poor credit, or are a first-time homebuyer or veteran, one of these mortgages could help make homeownership possible for you.
A government-backed mortgage is a home loan that is insured or guaranteed by a federal agency. You may qualify for a mortgage backed by the Federal Housing Administration (which is part of the US Department of Housing and Urban Development), US Department of Agriculture, or the US Department of Veterans Affairs.
These types of loans aren't direct loans, meaning you don't apply for a government-backed mortgage directly through the government agency — you apply through a private mortgage lender that offers FHA, VA, or USDA loans. If you default on a mortgage that's backed by the government, the agency pays the lender on your behalf.
When a lender gives you a government-guaranteed mortgage, it's like the lender is getting insurance on your loan. This is what allows the lender to offer you more favorable terms, such as a lower rate or more flexible credit requirements.
A conventional loan is not guaranteed by the government. A private lender, such as a bank or credit union, gives you the loan without insurance from the government. However, most conventional mortgages are backed by the government-sponsored enterprises Fannie Mae or Freddie Mac, provided they meet the criteria set forth by the enterprises.
Each type of government-backed loan is different, but it's generally easier to qualify for one than for a conventional mortgage.
There are three main types of government-backed loans for buying a home: VA, USDA, and FHA.
Each type of mortgage has its own requirements regarding what down payment, credit score, and debt-to-income ratio you'll need to qualify.
Keep in mind that each lender can set its own standards surrounding credit scores and DTI ratio. For example, while the rule of thumb is that you can qualify for an FHA loan with a 580 credit score, a lender has the right to say it requires a 600 credit score.
A VA mortgage is for active-service military members or veterans, or certain qualifying spouses of members who have died. VA loans usually charge lower interest rates than conventional mortgages.
Here are the requirements to get a VA loan:
See Insider's picks for the best VA mortgage lenders>>
USDA loans are for low-to-moderate income borrowers buying homes in rural or suburban areas. Like VA loans, USDA mortgages typically charge lower interest rates than conventional loans.
To be eligible for a USDA loan, you'll need the following:
See Insider's picks for the best USDA loan lenders>>
Unlike VA and USDA loans, FHA mortgages aren't for a specific group of people. You'll probably get a lower rate than you would with a conventional mortgage. The downside is that you do need money for a down payment.
You'll need the following to get an FHA loan:
See Insider's picks for the best lenders for FHA loans>>
Getting a government home loan comes with its trade-offs. Some of the pros and cons will depend on which type of government loan you choose.