Tennessee Realtor State Practice Exam

Which type of loan is insured by the Federal Housing Administration (FHA)?

1. Conventional

2. Government

3. Private

4. Fixed-rate

The correct answer is: Government

The Federal Housing Administration (FHA) insures loans that are categorized as government loans. These loans are designed to help low to moderate-income individuals and families obtain affordable home financing. The FHA provides this insurance to lenders, which reduces the risk for these institutions and allows them to offer more favorable terms to borrowers, such as lower down payments and easier credit qualifications. Government loans, including FHA loans, typically have specific guidelines and requirements that borrowers must meet, which differ from conventional loans that are not backed by government entities. While conventional loans can be either fixed-rate or adjustable-rate, and private loans are often tailored more specifically to individual agreements, FHA loans are governed by federal regulations and provide a safety net for both the borrower and the lender. The focus of FHA loans on accessibility aligns with the government's mission to promote homeownership, particularly among those who might otherwise struggle to secure sufficient financing.