Why are FHA loans beneficial to lenders?

• A. They are insured by the federal government
• B. They require no down payment
• C. They have no mortgage insurance
• D. They have higher interest rates

Answer: (A)

FHA loans are beneficial to lenders because they are insured by the federal government. This insurance reduces the lender’s risk when a borrower defaults, since the government backing helps cover losses. With that protection, lenders can approve loans to a wider range of borrowers, including those with smaller down payments or less-than-perfect credit, while still maintaining a manageable level of risk.

The other factors aren’t the source of the lender benefit: FHA loans do require a down payment (though the minimum is often smaller than conventional loans), they include mortgage insurance (mip) to protect the lender, and while rates can be competitive, higher rates are not why lenders favor FHA loans.