Conventional Loan
A conventional loan is a type of mortgage that is not backed by any government agency, such as the Federal Housing Administration (FHA). These loans can feature either fixed or adjustable interest rates and typically require a down payment of 20% or more.
Since conventional loans lack government insurance, lenders assume a higher risk if the borrower is unable to repay the loan. As a result, homebuyers with lower credit scores may find it challenging to qualify for conventional loans, as lenders require more assurance that borrowers will not default on their mortgages.
For those who do not have a high credit score or cannot afford the substantial down payment associated with a conventional loan, FHA loans serve as a viable alternative. Because these loans are insured by a government agency, lenders can offer significantly lower down payment requirements and competitive interest rates, making homeownership more accessible for many borrowers.
