Which type of loan is considered a conventional loan?

A conventional loan is defined as a mortgage that is not guaranteed or insured by the federal government, making it a standard loan option that meets the criteria set by Freddie Mac and Fannie Mae. In this context, the choice indicating a commercial bank's Adjustable Rate Mortgage (ARM) loan aligns with this definition because it refers to a type of loan from a private lender without the backing of federal insurance.

Conventional loans can take various forms, but they generally include loans from commercial banks, credit unions, and other private financing institutions. An ARM is a specific type of conventional loan wherein the interest rate may change at specified periods, which can be a desirable feature for some borrowers looking for lower initial payments.

On the other hand, contract for deed, VA insured loans, and FHA insured loans are not classified as conventional loans because they involve some form of government backing or specific conditions related to ownership transfer and downside protection for lenders. By understanding that a conventional loan must operate outside of federal insurance parameters, one can clearly recognize that an ARM loan from a commercial bank fits this classification.