What defines a conventional loan?

A conventional loan is defined as a loan not insured or guaranteed by the federal government. This means that conventional loans are typically offered by private lenders, such as banks and credit unions, and are based on the borrower’s creditworthiness and ability to repay rather than government backing.

This characteristic distinguishes conventional loans from other types, such as FHA and VA loans, which do have federal insurance or guarantees. Borrowers pursuing a conventional loan must meet specific credit and income requirements set by the lender, and they usually require a higher credit score compared to government-backed loans.

In contrast, options such as loans specifically for first-time home buyers may represent certain products within the conventional loan category, but they are not a defining characteristic of conventional loans as a whole. Similarly, a loan that adjusts in interest rates over time pertains to adjustable-rate mortgages, and including private mortgage insurance is often a condition of traditional loans when borrowers make a smaller down payment but is also not a defining feature of conventional loans.