What is a key feature of a conventional loan?

A key feature of a conventional loan is that it does not have federal backing. Conventional loans are typically offered by private lenders and are not insured or guaranteed by government entities like the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). This characteristic distinguishes them from government-backed loans that provide more security to lenders, often allowing for lower down payment requirements and more lenient qualification criteria.

Without federal backing, lenders assume a greater risk, which can lead to higher interest rates compared to government-insured loans. This aspect is crucial for understanding the risk profiles of different loan types and how they align with borrower financial situations.

Choosing a conventional loan may be suitable for borrowers with strong credit histories and financial stability, as they may be more comfortable with the stricter qualification requirements and possibly higher costs associated with the absence of government support.