Government Mortgage Versus Conventional Home Loans - Mortgage Refinancing Differences

This article summarizes the differences between conventional and government loans for first-time buyers, homeowners looking for mortgage refinancing, and those looking to cash out on equity for loan consolidation, debt consolidation or home improvement through home equity loans (second mortgages).

Conventional Mortgages

• Not guaranteed or insured by the Federal Government.

• Features 0% to 20% down payment options.

• Usually fixed mortgage rates for 15 to 30 years or adjustable rate mortgages (ARMs).

• Maximum conforming limit is $417,000. Otherwise, it’s a jumbo or non-conforming conventional loan.

Government Mortgages

• Insured against default by the Federal Government, making qualification less stringent:

- FHA loans are insured by the Federal Housing Administration.

- VA loans are guaranteed by the Department of Veteran Affairs.

• FHA loans require 3% down payments and are 15 and 30 year fixed rate loans or 1 year ARMs.

• VA loans are only available to eligible veterans or surviving spouses of deceased veterans.

• No down payment required—up to 100% financing allowed.

• Maximum loan amounts for government loans are set geographically.

• Mortgage refinancing into government loans is only available to existing holders of government mortgages.

Stated Income Mortgage Loans

"Stated-income mortgages are for people who make the money they say they make, but that amount doesn't show up on the bottom line of their income taxes," says Hugh McLaughlin, president and CEO of KMC Mortgage Services Inc., a lender and broker in Naples, Florida. They are non-conventional loans with higher rates than conventional mortgages--borrower interest rates depend on several factors: income stability, debt-to-income ratio, credit score, down payment and property appraisal value. Stated income mortgages can be 15 or 30 year fixed rate loans or adjustable rate mortgages.