Loan Officer Practice Exam

An FHA-insured loan is classified as what type of financing?

1. Non-conventional financing

2. Conventional financing

3. Subprime financing

4. Commercial financing

The correct answer is: Non-conventional financing

An FHA-insured loan is classified as non-conventional financing because it is backed by the Federal Housing Administration (FHA), which provides insurance to lenders against defaults on these loans. Non-conventional loans are typically designed to assist borrowers who may not qualify for conventional loans due to various factors like lower credit scores or smaller down payments. In contrast, conventional financing refers to loans that are not government-backed and typically involve stricter qualification criteria, including higher credit scores and larger down payments. Subprime financing is aimed at borrowers with poor credit histories and usually comes with higher interest rates and less favorable terms. Commercial financing, on the other hand, is used for business purposes, such as purchasing property for rental or office use, rather than for individual home purchases which FHA loans serve. Therefore, the classification of an FHA-insured loan as non-conventional financing highlights its unique characteristics and purpose in making home ownership more accessible to a broader range of individuals.