Which of the following is NOT a characteristic of a conventional loan?

• A. Insured by the federal government
• B. Can require private mortgage insurance
• C. Not government-backed
• D. Often used for home purchases

Answer: (A)

A conventional loan is defined primarily by its lack of government backing. Therefore, the feature that it is insured or guaranteed by the federal government is not characteristic of conventional loans. Instead, conventional loans are typically offered by private lenders and can be classified into two categories: conforming and non-conforming loans based on their adherence to guidelines set by Fannie Mae or Freddie Mac.

Another aspect of conventional loans is that they can indeed require private mortgage insurance (PMI) if the down payment is less than 20%. This is a common practice to mitigate the lender's risk in case of default.

These loans are widely used for home purchases, making them a common choice among borrowers. Because they do not receive federal backing, they often involve stricter credit requirements compared to government-backed loans like FHA or VA loans, which reinforces the point of their defining characteristics.