Which of the following describes an FHA loan?

Which of the following describes an FHA loan?

• A. A loan that provides no insurance for lenders
• B. A loan that requires mortgage insurance to protect against losses
• C. A loan with unlimited mortgage insurance fees
• D. A loan with no down payment requirement

Answer: (B)

An FHA loan is a type of mortgage that is insured by the Federal Housing Administration. This insurance significantly benefits lenders by protecting them against losses in case the borrower defaults on the loan. Because of this insurance, lenders are more willing to offer loans to borrowers who might otherwise face challenges qualifying for conventional financing, such as those with lower credit scores or limited financial resources. FHA loans typically require mortgage insurance premiums (MIP), which help cover this insurance, thereby providing both security for lenders and access to affordable financing options for borrowers. Although some options regarding down payment assistance may exist, mortgage insurance is a fundamental aspect of the FHA loan structure. Other options mentioned may mislead regarding the characteristics of FHA loans, particularly concerning the requirements for mortgage insurance and down payment. However, the key feature that sets FHA loans apart is indeed the mandatory mortgage insurance to safeguard lenders.

An FHA loan is a type of mortgage that is insured by the Federal Housing Administration. This insurance significantly benefits lenders by protecting them against losses in case the borrower defaults on the loan. Because of this insurance, lenders are more willing to offer loans to borrowers who might otherwise face challenges qualifying for conventional financing, such as those with lower credit scores or limited financial resources.

FHA loans typically require mortgage insurance premiums (MIP), which help cover this insurance, thereby providing both security for lenders and access to affordable financing options for borrowers. Although some options regarding down payment assistance may exist, mortgage insurance is a fundamental aspect of the FHA loan structure.

Other options mentioned may mislead regarding the characteristics of FHA loans, particularly concerning the requirements for mortgage insurance and down payment. However, the key feature that sets FHA loans apart is indeed the mandatory mortgage insurance to safeguard lenders.