What is one key feature of government-backed loans like FHA or VA?

Government-backed loans, such as those insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA), include a crucial feature that helps mitigate risk for lenders: insurance protection. This protection allows lenders to offer loans to borrowers who might not qualify under conventional standards, as the government covers a portion of the loss in the event of default.

This insurance is particularly significant for lenders as it encourages them to extend credit to a broader range of borrowers, including those with lower credit scores or limited financial histories. The backing from government entities increases the stability of the mortgage market and helps support homeownership, particularly for first-time buyers, veterans, and those in need of affordable housing options.

In contrast to the options mentioned, government-backed loans do not have exceptionally high credit score requirements, and their purpose is not fundamentally for "all types of borrowers without restrictions." Additionally, these loans typically provide competitive interest rates rather than the highest available, making home buying more accessible for many individuals.