In conventional loans, what does the lender rely on as security for the loan?

In conventional loans, the lender relies on the collateral property as security for the loan. This means that the property being financed serves as a guarantee for repayment. If the borrower defaults on the loan, the lender has the right to take possession of the property through foreclosure. This reliance on the collateral property is foundational in conventional lending because it mitigates the lender’s risk; they can sell the property to recover the outstanding loan balance.

Government backing is typically associated with government-sponsored loans, where entities like FHA or VA provide guarantees against defaults. The borrower’s credit score plays a significant role in determining loan approval and terms, but it is the property itself that secures the loan. Insurance policies may cover different risks but do not serve as the primary security for a conventional loan. Thus, the correct answer highlights the essential concept that the collateral property is what backs the loan in these types of lending scenarios.