What distinguishes a conventional loan from a government-backed loan?

The distinguishing factor of a conventional loan is that it is not insured or guaranteed by the government. This means that these loans are issued by private lenders and are subject to the lending criteria established by those financial institutions, rather than conforming to government guidelines.

In contrast, government-backed loans, such as those insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA), come with protections and assurances for lenders. These protections, which come from government backing, typically allow borrowers to qualify for loans with lower credit scores and smaller down payments.

While it is true that some conventional loans can have competitive interest rates or may be fixed-rate, those characteristics are not definitive factors that separate them from government-backed loans. Likewise, many conventional loans are not always fixed-rate and can also be offered as adjustable-rate mortgages. Hence, the essence of the distinction lies in the absence of government insurance or guarantees for conventional loans.