Govt. Vs. Conventional Loan

Govt. Loan -- Government or Federal loans can be availed through different government programs where you can pay off multiple debts by consolidating them into a single loan instead of paying off each one individually. As government bodies are non-profit making they understand the needs of the customers. They aim to fulfill the needs of the citizens. There are some people who believe that you should get a government debt consolidation loan to pay off multiple debts. Most individuals who qualify for these types of loans are consolidating student loan debt, not personal credit card debt. Other government debt consolidation loans are usually reserved for corporations and small business.
Government agencies such as the FHA, the FmHA, and the VA can insure or guarantee loans. The FHA is a part of the Department of Housing and Urban Development and insures residential mortgage loans made by private lenders. The FmHA provides financing to farmers and other qualified borrowers who may have trouble getting loans. VA loans are for veterans or members of the military and can have a lower down payment.
Under government consolidation loans there are four types of plans namely standard plan, extended plan, graduated payment plan and contingent repayment plan.

Advantages of Govt. Loan are:-

1) Very low or no down payments, like for student loans.
2) Low monthly mortgage insurance.
3) No credit score requirements.
4) Low closing costs.
5) Can qualify for a loan, two years after bankruptcy.
6) Can qualify for a loan, three years after a foreclosure.
7) Typically one isn't required to pay a fee to initiate the loan.
8) One need not pay the extra charges such as fees or other hidden charges.
9) There are no penalties for prepayment.
10) The terms of repayment are also flexible.
11) One can avail the facility of deferred payment.
12) One can also avail discount under certain circumstances such as paying through auto-debit plan.

Disadvantages of Govt. Loan are:-

1) Govt. loans aren't available for personal credit card debt.
2) Huge amount of loan can't be availed.
3) Depending on one's specific situation, govt. loans might not be available to everyone.

Conventional Loan -- Conventional loans were the first traditional mortgage loans made by local lenders. A conventional loan is any mortgage which is not guaranteed or insured by the federal government. Loans not guaranteed or insured by these agencies are known as conventional loans. These loans adhere to Fannie Mae guidelines. Fannie Mae, or Federal National Mortgage Association, is a corporation created by the federal government that buys and sells conventional mortgages. It sets the maximum loan amount and requirements for borrowers.

Advantages of Conventional Loan are:-

1) Lenders may be more willing to negotiate or eliminate certain loan fees.
2) The lender may allow to choose the kind of collateral.
3) A lender may be willing to finance for personal property (such as appliances and furniture) with the real estate loan.
4) Lenders may be willing to keep the loan in their own lending portfolio, thus allowing more underwriting flexibility because the loan will not have to meet secondary market guidelines.

5) If the loan is held in portfolio, appraisals will only need to meet the lender's guidelines (or the secondary market's if the loan is sold), instead of the strict appraisal standards of the Federal Housing Administration (FHA) and the Veterans Administration (VA).
6) If a borrower has difficulty obtaining Private Mortgage Insurance (PMI), the lender may self-insure the loan, increasing the interest rate of the loan to compensate for its greater risk.
7) For the cash-short borrower, the lender may be willing to fund a portion of the closing costs in exchange for a higher loan interest rate.
8) If the loan is to be held in portfolio, the lender may allow some creative financing options for the buyer.

Disadvantages of Conventional Loan are:-

1) These typically require larger down payments.
2) Interest rates are set by each lender and can exceed those of FHA and VA loans.
3) There is initiation fee for such loans.
4) Initiation fees and other costs are also determined by individual lenders and may therefore be higher than those of other programs.
5) Because mortgage documents for conventional loans can vary by state and even by lender, the lender could specify that certain clauses be included in a mortgage contract; for example, alienation (due-on-sale), prepayment penalty, or acceleration clauses.
6) Loans with greater than an 80 percent loan-to-value (LTV) ratio will require the borrower to purchase Private Mortgage Insurance.
7) Some lenders may require that the borrower pay nonrefundable application or processing fees at the time of loan application.
8) The lender may not allow some creative financing options for the buyer.

The applicant must choose any plan based on his own need. Before enrolling to any program be careful not to choose the wrong program plan.