Which statement accurately reflects current FHA policy regarding construction financing?

The correct current answer is B. The old practice-bank proposition that FHA simply “does not insure construction loans” is too broad and should not be memorized.

The Federal Housing Administration does not generally originate consumer mortgage loans itself. Instead, FHA insures qualifying mortgages made by approved lenders. FHA programs can include financing structures involving construction, substantial rehabilitation, manufactured housing, and conversion of qualifying construction financing into permanent FHA-insured financing when applicable program requirements are satisfied.

The important examination distinction is between direct lending and mortgage insurance. FHA is part of HUD and principally reduces lender credit risk by insuring eligible loans.

HUD confirms that FHA insures residential mortgages and provides multiple financing programs rather than operating as the direct mortgage lender.

Therefore, the categorical statement “FHA never insures construction financing” is outdated and technically incorrect.

Study Guide Reference: Financing — FHA-Insured Mortgages; Government Loan Programs and Construction/Rehabilitation Financing.