What is a conventional loan?

A conventional loan is defined as a mortgage that is not insured or guaranteed by the federal government. This means that it is typically offered by private lenders and does not have government backing, like FHA or VA loans. Due to the absence of such guarantees, conventional loans often have stricter credit requirements and may require a larger down payment, but they can offer benefits such as potentially lower interest rates for borrowers with good credit.

Conventional loans can be categorized into conforming and non-conforming loans, with the former adhering to specific guidelines set by government-sponsored enterprises like Fannie Mae and Freddie Mac. As a result, these loans are a popular choice for many homebuyers, especially those who can meet the qualifications due to their financial standing.

The other options incorrectly describe what a conventional loan entails, thus clarifying why they do not apply. A mortgage that is federally insured pertains to government-backed loans rather than conventional loans. Similarly, a type of government-backed student loan is unrelated to mortgages entirely. Furthermore, while a fixed interest rate can be one feature of several loan types, including conventional loans, it does not define what a conventional loan is, making it an insufficient description of this particular loan category.