Which type of loan is classified as a conventional loan?

A conventional loan is best described as a loan made outside of government housing programs. This definition encompasses loans that are not insured or guaranteed by any governmental entity, such as the FHA (Federal Housing Administration) or VA (Veterans Affairs). Conventional loans can be either conforming, which means they meet the standards set by government-sponsored enterprises like Fannie Mae and Freddie Mac, or non-conforming, which means they do not meet these criteria.

This categorization is important in the broader context of real estate and financing because conventional loans typically have stricter credit requirements and may require a larger down payment compared to government-backed loans. They offer borrowers a range of options, including fixed and adjustable rates.

In contrast to government-backed loans, which have lower barriers to entry and are designed to support specific groups of borrowers, conventional loans provide more flexibility for lenders and borrowers alike but often come with higher expectations regarding creditworthiness and financial stability.