Conventional loans are best described as loans that are which?

Conventional loans are best described as loans that are which?

• A. Insured by the federal government
• B. Guaranteed by the federal government
• C. Neither insured nor guaranteed by the federal government
• D. Backed by state government

Answer: (C)

Conventional loans are private-sector loans that do not have insurance or a guarantee from the federal government. They are funded by banks and other lenders and rely on the borrower’s credit, income, and down payment. Government-backed loans exist separately (FHA loans are insured by the government, VA loans are guaranteed, and USDA loans are guaranteed). Since conventional loans don’t come with federal insurance or a federal guarantee, the most accurate description is that they are neither insured nor guaranteed by the federal government. A private mortgage insurance (PMI) may be required if the down payment is small, but that insurance is provided by private entities, not the government. They are also not backed by state governments.

Conventional loans are private-sector loans that do not have insurance or a guarantee from the federal government. They are funded by banks and other lenders and rely on the borrower’s credit, income, and down payment. Government-backed loans exist separately (FHA loans are insured by the government, VA loans are guaranteed, and USDA loans are guaranteed). Since conventional loans don’t come with federal insurance or a federal guarantee, the most accurate description is that they are neither insured nor guaranteed by the federal government. A private mortgage insurance (PMI) may be required if the down payment is small, but that insurance is provided by private entities, not the government. They are also not backed by state governments.