How is a conventional loan defined?

A conventional loan is defined as a type of mortgage loan that is not backed by a government agency. This means that it operates within the private sector without any guarantees or insurance from federal institutions. Conventional loans can be either conforming, which meet specific criteria set by government-sponsored entities like Fannie Mae and Freddie Mac, or non-conforming, which do not meet those criteria.

The key aspect of this definition is the absence of government backing, distinguishing conventional loans from other mortgage types such as FHA, VA, or USDA loans, which do have federal support. This often leads to different qualification standards, down payment requirements, and cost structures in comparison to government-backed loans.

While other options touch on characteristics that can relate to loans, they do not encapsulate the essential nature of what constitutes a conventional loan. For instance, a fixed interest rate or consideration of the borrower's credit score are attributes that can apply to various loan types, including conventional loans, but they do not define what makes a loan "conventional."