USDA Vs. Conventional Loans: What's The Difference?
Author:
Hanna KielarFeb 2, 2024
•6-minute read
USDA loans and conventional loans are two options you can consider when you’re applying for a loan. To help you determine the best mortgage solution for you, we've created a comprehensive guide that compares USDA and conventional loans.
Requirements For USDA And Conventional Loans
USDA loans are subsidized by the U.S. government, and more specifically, are backed by the U.S. Department of Agriculture. In other words, the USDA takes on the responsibility of paying the lender back if you default on your mortgage.
Since the USDA is taking on a lot of the risk, your lender can offer you a lower interest rate. Ultimately, government-backed loans make it affordable for lower-income households to buy a home.
Unlike USDA loans, conventional mortgages aren’t insured by the U.S. government. Conventional loans fall into two categories: conforming and non-conforming. Conforming loans are purchased by two government-sponsored enterprises, Fannie Mae and Freddie Mac – so they have to fit Fannie Mae’s and Freddie Mac’s guidelines. Non-conforming loans, on the other hand, are less standardized in terms of eligibility, pricing and features.