Finance
The Federal Housing Administration (FHA) insures mortgages rather than making them directly. This means that in an FHA loan:
AThe FHA directly funds the mortgage from federal tax revenues
BA private lender makes the loan, and the FHA insures the lender against loss if the borrower defaults✓ Correct
CThe FHA sets the interest rate and the lender passes it along
DFHA loans are only available for government employees
Explanation
FHA is a mortgage insurance program—not a direct lender. Private lenders (banks, mortgage companies) make FHA loans to eligible borrowers, and the FHA insures the lender against a loss if the borrower defaults. The insurance makes lenders willing to offer loans with lower down payments (3.5%) and more flexible credit standards. Borrowers pay a mortgage insurance premium (MIP) to fund the insurance program. FHA loans are widely used by Illinois first-time homebuyers.
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