Final answer:
A conventional loan is a type of mortgage loan that is not insured or guaranteed by a government agency. It often requires a higher credit score and a larger down payment.
Step-by-step explanation:
A conventional loan is a type of mortgage loan that is not insured or guaranteed by a government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). It is typically offered by private lenders and follows certain guidelines set by Fannie Mae and Freddie Mac, two government-sponsored enterprises.
Unlike government-backed loans, conventional loans may require a higher credit score and a larger down payment. However, they often have lower interest rates and more flexible repayment terms. Conventional loans can be used to purchase a primary residence, a second home, or an investment property.
For example, in a conventional loan, if a borrower can make a down payment of at least 20% of the purchase price, they may be able to avoid paying private mortgage insurance (PMI), which is usually required for borrowers with a lower down payment.