Tennessee Realtor State Practice Exam

What is a key feature of the Federal Housing Administration's loan program?

1. Offers loans with no interest.

2. Insures lenders against loss from borrower default.

3. Provides loans only to first-time homebuyers.

4. Requires no down payment for all borrowers.

The correct answer is: Insures lenders against loss from borrower default.

The correct response highlights that a key feature of the Federal Housing Administration (FHA) loan program is the protection it offers to lenders through insurance against borrower default. This insurance incentivizes lenders to provide loans to borrowers who might otherwise be considered high-risk, such as those with lower credit scores or minimal down payments. By insuring these loans, the FHA helps facilitate homeownership by making it more accessible to a wider range of applicants, ultimately contributing to the stability of the housing market. The other options present attributes that do not accurately describe the FHA loan program. For instance, while some FHA loans may allow for low or no down payments, not all FHA loans require no down payment for all borrowers, as it often depends on the specific loan type and the borrower's financial situation. The claim that loans are offered with no interest is misleading, as FHA loans do incur interest rates based on market conditions. Additionally, the program does not exclusively cater to first-time homebuyers; it is available to anyone who meets the eligibility criteria. Thus, the option referring to insurance against default captures a fundamental aspect of how the FHA loan program operates.