South Carolina Mortgage Loan Originator (MLO) Practice Exam 2025 - Free MLO Practice Questions and Study Guide

The loan that is insured by the Federal Housing Administration is the FHA loan. This government-backed mortgage option is designed to make homeownership more accessible, particularly for first-time homebuyers or those with less-than-perfect credit. An FHA loan allows for a lower down payment compared to conventional loans, often as low as 3.5%, and the insurance provided by the FHA protects lenders against losses in case of borrower default. This insurance is crucial in helping to stabilize the housing market and provides lenders with reassurance, enabling them to offer more favorable lending terms to borrowers who may not qualify for conventional financing.

The other options do not provide the same insurance through the FHA. VA loans are backed by the Department of Veterans Affairs, conventional loans are not insured by any government entity, and home equity lines of credit are secured against the equity in a borrower's home rather than being a specific type of insurance-backed mortgage. Understanding these distinctions is important for recognizing the different types of financing options available to borrowers.