The Difference Between Conventional Loans and Government-Backed Loans

Prospective homeowners have many options to consider in deciding what type of loan is best aligned with their financial needs and goals. And it’s often possible to get lost in the sea of mortgage lingo without ever really understanding what all of the various terms mean.

What follows is an attempt to clarify the difference between two types of mortgage loans that can be taken out for the purchase or refinance of a new home: conventional loans and government-backed loans.

Conventional Loans
Conventional loans are loans that are made purely in the private sector and therefore come with no sort of backing by any federal agency. Because these types of mortgage loans don’t have any backing by a federal agency, they typically tend to have a higher down payment and credit score requirements than government sponsored loans.

The amount of the down payment varies for conventional loans, but it can typically be around 10%. Now, if you’re taking out a home loan on a house that cost $500,000, that’s going to involve a $50,000 down payment cost.

Most people simply don’t have that much money lying around ready to be invested. But, of course, that isn’t the case for everyone. If you’re well off with great credit and can afford it, then there are powerful incentives to look into getting a conventional mortgage. Not only will you likely get one of the better mortgage rates available, you won’t necessarily have to pay for private mortgage insurance.

Government-Backed Loans
By contrast, government-backed loans are insured through some sort of government agency. The Federal Housing Agency, the Department of Veterans Affairs and the Department of Housing and Urban Development are among three of the government agencies insuring these loans.

Federal Housing Administration (FHA) loans are by far the most popular and widely used government-backed loans. FHA loans constituted only a fairly modest market share of home loans, somewhere in the single digits just a few years ago.

By 2011, these loans dramatically rose in popularity and now comprise 30% of all home loans being produced. This sharp rise in government-backed loans is due in part to the way the private sector has responded to the housing crisis.

As more and more households were thrown into foreclosure, lenders in the private sector began tightening up their lines of credit to prospective new homeowners. They also instituted stricter requirements on the type of credit worthiness that would allow one to qualify for a home loan.

Because of the stricter new requirements, FHA loans often became the only choice for people looking to qualify for a home loan.

The most popular FHA loan requires that the recipient of the mortgage loan put at least 3% down, but 100% of this money can come from an external source. It may come from a gift from a relative, non-profit organization or government agency. So, in at least some sense, it is possible to get a FHA loan with zero money down.

There are numerous factors that should be considered when deciding to get either a conventional or government-backed loan. But the same general rules apply. Buyers with good credit should look into conventional loans. Buyers with less than perfect credit who are looking for a low down payment and low closing costs should definitely look into getting a government-backed loan.

A Detailed Overview Of Student Loans Without Cosigner

One of the options that students can take advantage of to pay for their tuition fees are student loans without co-signer. Sadly, there are so many students out there without the relevant information on the best way to apply for these loans. As such, most of the applications for student loans without co-signers end up not being approved which mean more problems in financing their education. Actually, students can apply for both private loans and loans supported by the federal institute.

Steps to follow to qualify for the loans

First of all, when thinking about student loans without co-signer, it is essential that you read and thoroughly comprehend the eligibility form before you fill out the required details. This provides some insights on how to convince the lender of student loans without co-signer to avail the loan to you by showing that you are certainly qualified for the loan. After reading your form, you will be in a position to explain precisely all the requirements as per the forms specifications. This will also ensure that your application form is accompanied by the necessary and required documents. These and many other punctual actions can result in the lender responding appropriately to your application.

Some important things to know

Something very important you need to do in relation to student loans without co-signer is to be truthful when applying for loans without co-signer. Honesty is a virtue that every lender will reward as they easily understand your personal situation. Also ensure that all your credit bills and other debts are settled on time as missed and delayed payments can really frustrate your chances of qualifying for the loans. In fact, if you have a bad credit history and score, then you can as well count your application for loans without co-signer as unsuccessful.

Know your options

When it comes to student loans without co-signer, there are several options that students can consider and apply for them accordingly. To start with, the federal government offers some few programs on loans without co-signer. For instance, there are Pell Grants which are given to students that are in dire need of assistance to pay their tuition fees. Essentially, this form of loan does not require the students to repay back the money and it is one of the best options for loans without co-signer if you can qualify for the grant. Still, the government also offers Stafford Loan under this program but unlike the Pell Grant loan, this one must be repaid back as it is not free money.

Another option of accessing student loans without co-signer is applied via private lenders in the country. For those students who opt for this route, it is essential they have a loan co-signer when entering into an agreement with the private lender. Your chosen private lender then critically examines the credit report you have availed. This will help in evaluating your application and most importantly the lender will then determine the kind of risk that you pose in having the loan awarded to you. For applicants without a credit history, then the lender will require that a family member Co signs the loan agreement before you are awarded the loan.

Essentially, Stafford loan does not need a co-signer all thanks to the process followed when borrowing the money. As such, loans without co-signer actually do not involve examination of your credit score or history. However, the lender will be interested to know the specific degree program that you are enrolled in, the income of your parents and lastly, the school that you will be attending. According to the government, every parent is required to contribute to the education of their children. As such, they will use the income to ascertain the extent in which a given parent will afford to pay for the tuition fee in a year.

After this, the government then decides exactly how much money they are going to give the student. Basically, federal loan covers for books and tuition and sometimes, the student housing cost will also be included in the package as well. However, the student must be residing in the campus for the housing cost to be covered by the loan. Where the student opts to live outside campus, he or she will then be required that they look for other alternative options for meeting the cost of rent. This is only exceptional where their choice of housing is a form of college or university arrangement.

Instructions/steps to follow

First of all, it is essential that you search for info regarding student loans without co-signer and you need to note that you should follow in the category of traditional students. The, the most crucial step in getting student loans without co-signer requires that you fill FASFA or simply, Free Application for Federal Student Aid and the form not only gives you an access to loans without co-signer but you also benefit from grant money. Stafford loans are either unsubsidized or subsidized and this is a function of who will be meeting interesting cost while you study. Sanctioned amount can be extremely low and only available to the seriously needy students only. Then there are also Perkins loans which are designed for students in extreme need of financial aid and in addition to have minimum interest rates, they also have longer loan repayment terms. The non traditional students can still look for other ways available for accessing student loans without co-signer which are still available to them provided they are able to prove that they deserve financial aid.