What is the primary difference between a conventional loan and an FHA loan?

The primary distinction between a conventional loan and an FHA loan lies in the backing and insurance provided to the loan. An FHA loan is specifically backed by the Federal Housing Administration, which is a government agency. This backing ensures that lenders have a level of security against default by borrowers, as the FHA insures a portion of the loan. This insurance allows borrowers who may have lower credit scores or smaller down payments to access financing that might not be available through conventional loans.

In contrast, conventional loans are not insured or guaranteed by any government agency. They typically require a higher credit score and a larger down payment than FHA loans. The insurance requirements, interest rates, and other characteristics of these loan types can differ significantly due to this foundational difference in their backing. Having the FHA's support helps to stabilize the housing market by encouraging lending to a broader range of borrowers while conventional loans operate more strictly in accordance with private lender requirements, without governmental support.