What does a conventional loan typically require?

A conventional loan typically requires a higher down payment than government-backed loans. This requirement stems from the fact that conventional loans are not insured or guaranteed by a government entity, which places a greater risk on lenders. To mitigate this risk, lenders often require borrowers to make a larger down payment.

In comparison to government loans like FHA loans, which may allow down payments as low as 3.5%, conventional loans often look for higher down payments, commonly around 5% to 20%. A larger down payment can decrease the lender's risk and may also lead to lower interest rates for the borrower, as it represents a significant investment in the property.

Although the correct answer highlights the requirement of a higher down payment, it's worth noting that while some conventional loans might not require mortgage insurance if the down payment is substantial, this is not a universal trait. Additionally, conventional loans can sometimes have interest rates that are competitive or even higher than those of FHA loans. Lastly, while conventional loans exist outside of certain stringent federal regulations that govern many government-backed loans, this does not directly pertain to the general requirements for securing such a loan.