How does a 'conventional loan' differ from a 'government-backed loan'?

A conventional loan is defined primarily by its lack of government backing or insurance. This means that these loans are offered by private lenders and are not backed by any federal agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). Since conventional loans do not have the government guarantee, lenders often require stricter credit qualifications and may charge higher interest rates compared to government-backed loans.

By contrast, government-backed loans are designed to reduce risk for lenders by providing insurance or guarantees. This can allow for more flexible lending criteria, including lower down payments and lower credit score requirements. The absence of a government guarantee in a conventional loan also means that lenders may assess the borrower's creditworthiness more stringently.

In the context of the other options, while interest rates can vary between loan types and sometimes conventional loans can be competitive in that regard, they do not inherently guarantee lower rates. The characteristic of requiring no down payment pertains more to specific government-backed programs rather than conventional loans, which often do require some form of down payment. Likewise, while a conventional loan can be used for investment properties, this is not a defining characteristic that sets them apart from government-backed loans.