California Real Estate Practice Exam

A loan that does not qualify to be purchased by the federal secondary mortgage market is referred to as what?

1. Prime loan

2. Subprime loan

3. Jumbo loan

4. Government-insured loan

The correct answer is: Subprime loan

A Prime loan is a mortgage loan that has a lower interest rate and is typically given to borrowers with a high credit score. This type of loan is considered to be less risky for lenders. A Jumbo loan is a type of mortgage loan that exceeds the conforming loan limit set by the Federal Housing Finance Agency. These loans are often used for expensive properties and come with higher interest rates. A Government-insured loan is a loan that is backed by a government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). These loans have less stringent requirements for qualification and are insured against default, making them less risky for lenders. Therefore, the correct answer is B Subprime loan, as it refers to a high-risk loan that does not meet the standards for being purchased by the federal secondary mortgage market. These loans often have higher interest rates and are given to borrowers with poor credit scores.