FHA _______ loans

FHA _______ loans

• A. Guarantees
• B. Insures
• C. Purchases
• D. Underwrites

Answer: (B)

The main idea here is how FHA financing works: the Federal Housing Administration provides mortgage insurance on loans that lenders approve, rather than guaranteeing, purchasing, or underwriting the loan itself. Because the FHA insures the loan, lenders can offer more favorable terms like lower down payments and easier credit standards, since the risk of loss if a borrower defaults is mitigated by the insurance. If a borrower does default, the FHA pays a portion of the loss to the lender through the mortgage insurance program, up to policy limits. The other options don’t fit: a guarantee would imply a promise to cover the loan in all circumstances, which isn’t how FHA operates; a purchase would mean the FHA buys the loan outright, which is not the stated role of FHA insurance; underwriting is the lender’s job under FHA guidelines, not a function performed by the FHA.

The main idea here is how FHA financing works: the Federal Housing Administration provides mortgage insurance on loans that lenders approve, rather than guaranteeing, purchasing, or underwriting the loan itself. Because the FHA insures the loan, lenders can offer more favorable terms like lower down payments and easier credit standards, since the risk of loss if a borrower defaults is mitigated by the insurance. If a borrower does default, the FHA pays a portion of the loss to the lender through the mortgage insurance program, up to policy limits. The other options don’t fit: a guarantee would imply a promise to cover the loan in all circumstances, which isn’t how FHA operates; a purchase would mean the FHA buys the loan outright, which is not the stated role of FHA insurance; underwriting is the lender’s job under FHA guidelines, not a function performed by the FHA.