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

A loan that does not qualify to be purchased by the federal secondary mortgage market is typically referred to as a subprime loan. Subprime loans are offered to borrowers who are considered higher risk due to poor credit history or other financial challenges. Because these loans carry a greater risk of default, they often cannot be sold to government-sponsored enterprises such as Fannie Mae or Freddie Mac, which primarily buy loans that meet specific underwriting criteria.

Conventional loans include those that conform to the standards set by these enterprises, meaning they are generally considered lower risk and thus can be sold on the secondary market. VA loans and FHA loans are government-backed and specifically designed for eligible borrowers, making them more likely to qualify for purchase in the federal secondary mortgage market.

Understanding the implications of the subprime designation is crucial for recognizing the risks involved in lending and borrowing practices, especially for those entering the real estate field.