What does the FHA primarily insure?

The Federal Housing Administration (FHA) primarily insures loans made by approved lenders to borrowers. This insurance serves to protect the lender against losses due to borrower default, making it easier for individuals to qualify for a mortgage. The FHA's insurance programs are designed to promote home ownership among different populations, especially first-time homebuyers or those with lower credit scores who might not qualify for conventional financing.

Insuring loans instead of insuring specific mortgage products means that the FHA allows for various mortgage types, such as fixed-rate or adjustable-rate mortgages, but its main role is in the protection of lenders regarding the loans they provide. Because of this insurance, lenders are more willing to offer loans with lower down payment requirements and flexible credit standards, contributing to increased access to homeownership.

In contrast, the other options represent areas outside the primary function of the FHA. Conventional loans do not require FHA insurance, as they are typically backed by private mortgage insurance if needed. Adjustable-rate mortgages can be insured by the FHA when structured correctly but do not encompass the main focus of FHA's role. Private mortgage insurance policies are separate from FHA insurance and are utilized for conventional loans to protect lenders in case of borrower default, but are not functions of the FHA itself.