Certified Residential Appraiser Practice Exam

Which type of loan is backed by the FHA or a private insurer?

1. Conventional Loan

2. Insured Mortgage

3. Guaranteed Mortgage

4. Consolidation Loan

The correct answer is: Insured Mortgage

The correct answer is the type of loan that is backed by the Federal Housing Administration (FHA) or a private insurer, which is characterized as an insured mortgage. FHA loans are government-backed loans designed to help individuals obtain financing for purchasing a home, often with lower down payment requirements and more lenient credit score criteria compared to conventional loans. This backing serves as a guarantee for lenders, reducing their risk in lending to borrowers who may not qualify for traditional financing. Insured mortgages are specifically beneficial for first-time homebuyers or those with less-than-perfect credit, as they enable a broader range of potential homeowners to access financing options. In contrast, conventional loans do not have any government backing and involve stricter criteria for eligibility. Guaranteed mortgages refer to loans supported by other forms of guarantees like those from the USDA, which target rural development, rather than FHA backing. Lastly, a consolidation loan is aimed at combining multiple debts into one, but it does not pertain to the backing by FHA or private insurers like an insured mortgage does. Thus, the defining feature of an insured mortgage is its backing by either the FHA or a private insurer.