Difficulty: Easy

Average Score: 100%

One of the primary functions of the Federal Housing Administration (FHA) is to:

Rationale

One of the primary functions of the Federal Housing Administration (FHA) is to insure home loans with high loan-to-value ratios.

The FHA's main role is to provide insurance on loans made by approved lenders to borrowers, which allows for lower down payments and makes homeownership accessible to more individuals, particularly those with lower income or credit challenges.

A (build low-income housing.) YOUR ANSWER

While the FHA supports affordable housing initiatives, it does not directly build low-income housing. Instead, it focuses on insuring loans for homes, thus facilitating access to financing rather than engaging in construction projects.

B (make home loans with no down payments.) YOUR ANSWER

Although the FHA allows for low down payment options, it does not make loans itself. Instead, it insures loans made by private lenders, which may include options for minimal down payments, but this is not its primary function.

C (insure home loans with high loan-to-value ratios.) CORRECT

This is the correct answer as the FHA specifically provides insurance for loans with high loan-to-value ratios, which enables borrowers to qualify for mortgages with lower down payments, thereby promoting homeownership among those who might not otherwise qualify.

D (provide homeowner's insurance to high-risk home purchasers.) YOUR ANSWER

The FHA does not provide homeowner's insurance; rather, it insures mortgage loans. Homeowner's insurance is typically purchased separately by the homeowner to protect against property loss or damage, and it is not a function of the FHA.

Conclusion

The Federal Housing Administration primarily focuses on insuring home loans, especially those with high loan-to-value ratios, thereby enhancing access to homeownership for individuals who may face financial barriers. While it supports affordable housing initiatives, it does not engage in construction or provide homeowner's insurance, distinguishing its core mission in the housing finance market.

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