Final answer:
A conventional loan matches the criteria set by Fannie Mae or Freddie Mac, whereas an FHA loan is insured by the Federal Housing Administration and is a different type of loan product designed to expand homeownership.
Step-by-step explanation:
A loan that meets Federal Housing Administration (FHA) criteria, making it eligible to be sold to Fannie Mae or Freddie Mac, is known as a conventional loan. These are mortgage loans that are not insured by any government agency, such as the FHA or the VA. Instead, they conform to the standards set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
FHA loans themselves are a type of government mortgage loan insured by the Federal Housing Administration and designed to help borrowers who might not qualify for a conventional mortgage. However, FHA loans have their own criteria and are not the same as conventional loans.
The role of the FHA has been pivotal in increasing American homeownership over the years, particularly following the changes after the Great Depression and World War II, where bank regulations were altered to make it cheaper and easier for banks to make home loans and stimulate the housing market.