What is the primary difference between FHA loans and conventional loans?

The primary distinction between FHA loans and conventional loans lies in the fact that FHA loans are government-backed. This means that they are insured by the Federal Housing Administration, which mitigates the risk for lenders and allows them to offer more favorable terms to borrowers. This insurance protects lenders from losses if the borrower defaults on the loan, resulting in lower interest rates and down payment requirements compared to typical conventional loans.

Conventional loans, on the other hand, are not insured or guaranteed by a government agency, meaning they carry a higher risk for lenders. This risk can translate into stricter credit score requirements and larger down payment expectations for borrowers seeking conventional financing.

In contrast, the other options inaccurately characterize FHA loans. They are indeed repayable; they do not require higher credit scores than certain conventional options; and they are designed primarily for residential properties rather than commercial. Thus, the correct option emphasizes the essential aspect of FHA loans being backed by the government.