PSI Virginia Real Estate Practice Exam

Which type of loans are backed by private lenders or government-sponsored enterprises?

1. Conventional loans

2. FHA insured loans

3. VA guaranteed loans

4. USDA/rural loans

The correct answer is: Conventional loans

Conventional loans are defined as mortgage loans that are not backed or insured by any government agency. Instead, they are offered by private lenders and are generally in accordance with the guidelines set by government-sponsored enterprises such as Fannie Mae and Freddie Mac. These loans typically adhere to more stringent credit requirements and down payment standards compared to government-backed loans. FHA insured loans, on the other hand, are backed by the Federal Housing Administration, providing a level of security for lenders when lending to lower-income borrowers or those with less-than-perfect credit. Similarly, VA guaranteed loans are loans backed by the U.S. Department of Veterans Affairs, which helps veterans and service members secure favorable lending terms. USDA/rural loans are backed by the U.S. Department of Agriculture and are designed to promote homeownership in rural areas. Conventional loans do not carry the same government backing as these options, relying instead on the standards established by private lenders and government-sponsored entities, thereby making them a significant choice in the real estate financing landscape.