Which type of loan is not backed by a federal agency?

The correct answer is the conventional loan, which is not backed by a federal agency. Conventional loans are typically offered by private lenders, such as banks or credit unions, and they do not carry any government-backed insurance or guarantees. This lack of federal backing means that lenders take on more risk when offering these loans compared to those that are insured or guaranteed by federal entities.

In contrast, FHA loans and VA loans are both government-backed. FHA loans are insured by the Federal Housing Administration, making them attractive for buyers with lower credit scores or smaller down payments. Similarly, VA loans are guaranteed by the Department of Veterans Affairs, providing benefits to eligible veterans and active-duty service members, and allowing for favorable loan terms without the need for private mortgage insurance.

Unconventional loans can sometimes refer to loans that deviate from the standards set by conventional lending practices but may not be strictly defined in the context of federal backing. The key distinction remains that conventional loans stand alone without the support of federal financial institutions, whereas FHA and VA loans explicitly benefit from government backing.