Conventional loan is a mortgage loan that is not insured or guaranteed by a government agency. Instead, it is backed by private lenders, such as banks or financial institutions. Conventional loans in mortgage are often subject to certain guidelines and requirements set by the lender, as they bear the risk of the loan.
In contrast, government-backed loans have government support that reduces the risk for lenders. Such loans are insured by the Federal Housing Administration (FHA loans), the Department of Veterans Affairs (VA loans), or guaranteed by Fannie Mae or Freddie Mac. This backing allows borrowers to obtain loans with more lenient qualification criteria, lower down payment requirements, etc.
Conventional loans in mortgage typically have stricter requirements. These include higher credit scores, lower debt-to-income ratios, and larger down payments. However, they offer loan term flexibility, lower interest rates, and no mortgage insurance premiums.
It’s important to note that loan programs and requirements can vary. That’s why it’s advisable to consult with lenders or mortgage professionals to understand the specific terms and options available to you.
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