Conventional loans are mortgages offered by private lenders without a government guarantee.
FHA, VA, USDA are the guaranteeing institutions of Government Sponsored loans. From the borrower’s perspective, Government Sponsored loans have less strict or specialized borrower requirements such as lower down payment, credit scoring, and debt-to-income tests. The Government Guarantee along with mortgage insurance (found on all FHA loans and most conventional loans of less than 20% down payment) makes the loans higher quality for bond investors who end up buying your loan because the default risk is eliminated.
Conventional, also called conforming, loans may end being purchased by other government agencies such as Ginnie Mae and Freddie Mac which are pseudo-governmental organizations.
Conventional loans generally have stricter requirements but Mortgage Analyzer’s review of historical data confirmed the biggest factors driving the decision between Conventional and Government Sponsored are loan-to-value (LTV) and FICO score especially for greater than 80% LTV homes.
For example, FHA loans generally have a fixed mortgage insurance cost depending on LTV but if you have a higher credit score you will likely be able to get a lower mortgage insurance premium with a conventional loan. It would be beneficial to get an FHA for a lower credit score unless you are over 80% LTV but below 90%. Mortgage Analyzer doesn’t recommend refinancing into a Government Sponsored loan. Under certain circumstances where you can reduce or eliminate your mortgage insurance, we could recommend refinancing into a conventional loan.