Wisconsin Real Estate Sales Practice Exam

Are FHA loans typically guaranteed or insured?

1. Guaranteed

2. Insured

3. Secured

4. Certified

The correct answer is: Insured

FHA loans are typically insured, which means they are backed by the Federal Housing Administration. This insurance provides protection to lenders against losses that may occur if a borrower defaults on the loan. The insurance is funded by mortgage insurance premiums paid by the borrower, which makes it possible for lenders to offer more favorable loan terms, such as lower down payments and easier credit requirements, to borrowers who may not qualify for conventional loans. The FHA's insurance not only protects lenders but also promotes homeownership by making it more accessible to a broader population. Since the loans are insured rather than guaranteed, it means that the lender can recover some of the losses through the insurance made available by the FHA if the borrower is unable to repay the loan. This system helps stabilize the housing market and supports lending institutions in providing loans with reduced risk.