A homebuyer obtains a qualifying FHA mortgage through an approved private lender.

The correct answer is C. The Federal Housing Administration, an agency within HUD, primarily provides mortgage insurance rather than directly lending the purchase funds to ordinary FHA borrowers.

The loan is originated by an approved mortgage lender. FHA insurance protects the lender against qualifying losses arising from borrower default, provided the lender and loan comply with FHA requirements. Because of this federal insurance, lenders may be able to offer qualifying borrowers comparatively flexible underwriting standards and relatively low down-payment requirements.

HUD expressly describes FHA ' s role as insuring the loan so the lender can provide qualifying financing terms.

Candidates should distinguish FHA from the Department of Veterans Affairs. VA generally guarantees a portion of eligible veterans ' loans, whereas FHA terminology centers on insurance.

Fannie Mae and Freddie Mac perform principally secondary-mortgage-market functions rather than insuring FHA loans.

Study Guide Reference: Financing — Government Loan Programs; FHA Mortgage Insurance.