A conventional mortgage is defined as any mortgage that is not a government-backed loan. A conventional mortgage is any loan that is not insured or guaranteed by FHA, VA or Rural Development. The United States government backs and guarantees FHA, VA and Rural Development loans. Before loans such as FHA and VA existed, all mortgages were conventional. Conventional mortgages are held by private financial institutions. In most instances conventional lending is more conservative than FHA or VA because of this. By calling conventional mortgages conservative it is meant that borrowers are expected to meet higher credit, income and asset standards. Borrowers may be required to put more money into down payment. As a rule a conventional loan holds a borrower to stricter standards across the board.

FHA mortgages are loans guaranteed by the Federal Housing Administration, a division of the US Department of Housing and Urban Development. These mortgages must meet FHA’s standards to be what is called ‘insurable’. FHA itself does not actually lend money. Instead FHA guarantees (insures) lenders that the federal government will pay for a portion of the cost of foreclosing on any mortgage FHA insures.

  FHA has traditionally been the most liberal source of mortgage money. FHA’s mission is to encourage Americans to own their own homes. It is the policy of the United States government to encourage residents of the country to become homeowners. Mortgages are offered with minimal down payment and less restrictive credit requirements. Anyone who qualifies can obtain a FHA loan. FHA is not limited to US citizens; resident and non-resident aliens are eligible as long as they are qualified.

A Veterans Administration (VA) mortgage is a loan that is made to an eligible United States veteran and meets VA guidelines. VA decides whether a discharged veteran or active duty soldier/sailor/airman is or is not eligible for VA financing. If a person can obtain the VA Certificate of Eligibility, that person is eligible for VA financing. If the certificate cannot be obtained, the person is ineligible. Many reservists are eligible.

  Some veterans believe that as a veteran he or she is automatically approved for a VA mortgage. This is incorrect. A veteran can be eligible to apply but not be qualified to obtain approval of the application. Any VA borrower must meet VA income, asset and credit requirements.

Guaranteed Rural Housing (RD) loans are primarily used to help low-income individuals or households purchase homes in rural areas.  Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance.  In addition, applicants must have reasonable credit histories.  There is no required down payment. The lender must also determine repayment feasibility, using ratios of repayment (gross) income to PITI and to total family debt.  Under the Section 502 program, housing must be modest in size, design, and cost.