What is the primary function of the Federal Housing Administration (FHA) in the mortgage market?
Correct Answer
B) It insures mortgage loans made by FHA-approved lenders
The FHA does not make loans directly; it insures mortgage loans made by FHA-approved lenders, reducing lender risk and allowing borrowers to qualify with lower down payments (as low as 3.5%) and more flexible credit requirements. This insurance protects the lender if the borrower defaults.
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Related Topics & Key Terms
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Related Concepts
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
A comparison of the major mortgage loan types—conventional, FHA, VA, and USDA—covering their eligibility requirements, down payment amounts, mortgage insurance rules, and best use cases.
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