The significant difference between conventional and non conventional loans in that with the latter, the FHA or Federal Housing Authority has your lender’s back. If you are unable to pay your loan, the FHA steps forward to pay the bank’s claim. This insurance process is not free. It is included with your mortgage payment, and this can be suddenly the payment up somewhat. The central fact is that the FHA protects your lender from losing the fund it has lent you gives your lender more confidence to approve your loan if you can not meet the most prohibitive needs for a conventional financing. The VA or Veteran Administration also backs non conventional loans.
Without FHA insurance, your lender needs to be as certain as possible that you are going to pay the debt you are contracting for. Thanks to FHA insurance, lenders of non conventional loans can take an option on you if credit record is less than needed, or if you are young and do not have much of a credit history yet at all. You might also get away with putting down less of a down payment on a non-conventional debt because the FHA is helping in their back to protect your lender against default. You can put down as small as 3.5% on an FHA-insured loan, and VA makes sure mortgages with no money down at all.