What is the primary role of the Federal Housing Administration (FHA) in mortgage lending?
Correct Answer
B) It insures loans made by FHA-approved lenders, protecting lenders against borrower default
The Federal Housing Administration (FHA), a division of the U.S. Department of Housing and Urban Development (HUD), does not make loans directly. Instead, it insures mortgage loans made by FHA-approved lenders, reducing lender risk and enabling borrowers with lower credit scores or smaller down payments (as low as 3.5%) to qualify. VA loans, not FHA loans, are reserved for eligible veterans and service members.
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Related Topics & Key Terms
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Related Concepts
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
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