What does it mean for a mortgage to be "insured"?

• A. It has a lower interest rate
• B. It means the loan is backed by a government agency
• C. It is secured by a co-signer
• D. It indicates a higher loan amount

Answer: (B)

When a mortgage is described as "insured," it means that the loan is backed by a government agency, which provides a guarantee to the lender that they will receive payment in the event of default by the borrower. This insurance reduces the risk for lenders, making them more willing to approve loans for borrowers who may not qualify for conventional financing due to lower credit scores or smaller down payments.

In the context of U.S. mortgages, programs such as those offered by the Federal Housing Administration (FHA), Veterans Affairs (VA), or the United States Department of Agriculture (USDA) provide insurance that supports borrowers and encourages homeownership, especially among first-time buyers or those in specific demographics. The presence of this insurance often results in lower down payment requirements and access to better loan terms for the borrower.