Certified Residential Appraiser Practice Exam

Which type of loan is commonly associated with specific government guarantees, such as those from the VA or FHA?

1. Conventional loan

2. Federally-insured loan

3. Subprime loan

4. Fixed-rate loan

The correct answer is: Federally-insured loan

The correct answer is associated with loans that have specific government guarantees designed to help certain borrowers access financing more easily. A federally-insured loan includes those that are backed by government entities like the Veterans Affairs (VA) and the Federal Housing Administration (FHA). These guarantees serve to reduce the risk for lenders, enabling them to offer more favorable terms, such as lower down payments and competitive interest rates, to borrowers who may not qualify for conventional financing. Government-backed loans have particular eligibility criteria and benefits. For instance, VA loans are specifically aimed at veterans and active-duty service members, while FHA loans are generally available to low-to-moderate income borrowers who may have less-than-perfect credit. The involvement of government insurance or guarantees can often lead to a smoother borrowing process for these segments of the population. Understanding the context of the other options clarifies why they are not the correct answer. Conventional loans are typically not backed by any government entity, while subprime loans are targeted towards borrowers with a poor credit history and do not carry government guarantees. Fixed-rate loans refer to the interest structure of a loan rather than its type or backing, and such loans can exist in various categories, including conventional, FHA, or VA-backed loans.