Certified Residential Appraiser Practice Exam

What best describes conventional loans?

1. Secured by government guarantee.

2. Insured by a government agency.

3. Not secured by a government agency.

4. Only available for veterans.

The correct answer is: Not secured by a government agency.

Conventional loans are best described as not secured by a government agency. This distinction is important because it means these loans are typically offered by private lenders and are not backed by governmental programs such as FHA or VA loans. Since these loans do not have government backing, they often require higher credit scores and more stringent qualification standards to mitigate the lender's risk. Furthermore, conventional loans can be either conforming or non-conforming, with conforming loans adhering to guidelines set by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac. However, this does not imply government guarantee or insurance, which is the key factor that differentiates conventional loans from other types that are federally insured or guaranteed.