Which of the following best describes the role of the Federal Housing Administration (FHA) in mortgage lending?
Correct Answer
B) FHA insures loans made by approved private lenders
The FHA does not make loans directly to borrowers. Instead, it insures loans made by FHA-approved private lenders, which reduces lender risk and enables borrowers with lower credit scores or smaller down payments — as low as 3.5% — to qualify for financing. Borrowers pay mortgage insurance premiums (MIP) to fund this program.
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Related Topics & Key Terms
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Related Concepts
Usury is the practice of charging an interest rate that exceeds the maximum rate permitted by state law. Usury laws protect borrowers from excessive interest charges on loans.
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.
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