If you are getting ready to purchase your first new home, you may want to look into several different types of loans. Two options you have are USDA loans and conventional loans, and here are five of the differences between these two types.


A USDA loan is one that is offered through the U.S. Department of Agriculture Rural Development. USDA loans are backed by the U.S. government, and this means that the government will pay off your lender if you default on the loan.

This program was originally created to help low-income families own their own homes, and this is why the terms of these loans are often better than those of conventional loans. A USDA loan can last for 33 or 38 years, and it will generally have a fixed interest rate. The long duration of the loan is designed to make payments lower and more affordable to borrowers.

A conventional loan, on the other hand, is not backed by the government. Instead, if follows the mortgage lending guidelines of Freddie Mac and Fannie Me. A conventional loan can last anywhere from 10 to 30 years, and it can have an adjustable interest rate or a fixed rate.


One key difference between these loan types is the type of house you can purchase. With a conventional loan, you have more freedom because you can use the loan to buy any type of house or second house.

You can only use a USDA loan to buy your first house though in most cases, and you must plan on using it as your primary residence. You may also be required to purchase the home in a rural area, and you may have to get the house approved through your lender first.

Down Payment

One of the reasons people look for USDA loans is because they allow you to finance 100% of the appraised value of the house. Conventional loans usually require a down payment of at least 20% of the appraised amount, and this is one of the factors that prevent people from being able to purchase a house.

Coming up with 20% down can be difficult to do, but you will not have to put any money down if you can get a USDA loan.

Requirements to Qualify

To get a conventional loan, a person must generally meet these requirements:

  • Good credit
  • Low debt-to-income ratio
  • Have a job and history of consistent income

While these are basic factors needed to qualify for standard loans, you will need to meet additional requirements to qualify for a USDA loan, and these include:

  • Income requirements – you cannot get a USDA loan unless your income is 115% or less of the median income in the area.
  • Credit – your credit must be good to qualify, and you cannot have a bankruptcy on your credit within the last two years.
  • Debt-to-income ratio – this ratio measures the amount of debt you have compared to your income, and you must have a ratio that is 29/41 or less. This requirement is often waived by lenders.

To find out if you meet these conditions, you will need to talk to a lender that offers USDA loans.

Interest Rate

Because USDA loans are backed by the government, the interest rates tend to be slightly lower than the rates of conventional loans. The lenders issuing these loans are guaranteed the money they loan out, and this makes the risk level lower.

Know that you understand these key differences, you might be ready to apply for a USDA loan today. Once you apply, it may take several days or weeks to find out if you are approved, and you will need to comply with any requests the lender makes. Continue for more info.