What type of mortgage guarantees the lender against a loss?

What type of mortgage guarantees the lender against a loss?

• A. A conventional loan
• B. A VA mortgage
• C. A FHA loan
• D. A fixed-rate mortgage

Answer: (B)

A VA mortgage offers a specific guarantee to lenders, which is the primary reason for its correctness in this context. The Department of Veterans Affairs backs VA loans, providing a guarantee that protects the lender against loss in case the borrower defaults on the mortgage. This guarantee helps lenders offer better terms, such as no down payment and lower interest rates, making homeownership more accessible for eligible veterans and active-duty service members. In contrast, conventional loans do not have a government backing; they rely on the borrower's creditworthiness and the value of the property. FHA loans also provide some level of protection to lenders through mortgage insurance, but they do not offer a direct guarantee as VA loans do. Lastly, a fixed-rate mortgage refers to the structure of the loan (the interest rate remaining constant), but it does not inherently provide a guarantee against lender loss. Thus, the VA mortgage stands out as the option that explicitly provides a guarantee against potential losses for lenders.

A VA mortgage offers a specific guarantee to lenders, which is the primary reason for its correctness in this context. The Department of Veterans Affairs backs VA loans, providing a guarantee that protects the lender against loss in case the borrower defaults on the mortgage. This guarantee helps lenders offer better terms, such as no down payment and lower interest rates, making homeownership more accessible for eligible veterans and active-duty service members.

In contrast, conventional loans do not have a government backing; they rely on the borrower's creditworthiness and the value of the property. FHA loans also provide some level of protection to lenders through mortgage insurance, but they do not offer a direct guarantee as VA loans do. Lastly, a fixed-rate mortgage refers to the structure of the loan (the interest rate remaining constant), but it does not inherently provide a guarantee against lender loss. Thus, the VA mortgage stands out as the option that explicitly provides a guarantee against potential losses for lenders.