Mortgage Loan Originator (MLO) Licensing Practice Test

What is the only limit imposed by the FHA?

1. Conforming Loan Limit

2. Statutory Lending Limit

3. Debt to Income Ratio Limit

4. Property Value Limit

The correct answer is: Statutory Lending Limit

The correct answer is the statutory lending limit. The Federal Housing Administration (FHA) imposes a statutory lending limit which dictates the maximum amount that can be insured for a single-family home loan. This limit varies by geographical area and is intended to reflect the cost of housing in a particular region. Understanding the context of this limit is crucial. The statutory lending limit is designed to ensure that the FHA supports loans that are useful and relevant to borrowers within various housing markets. It allows the FHA to focus its insurance on loans that fall within a range that makes sense based on regional economic conditions, thus managing risk and promoting homeownership. Other concepts such as conforming loan limits refer specifically to loans that meet certain criteria set by government-sponsored entities like Fannie Mae and Freddie Mac, which is distinct from FHA lending limits. Debt-to-income ratio limits relate to the financial assessment of borrowers rather than a cap on loan amounts, and property value limits pertain to individual appraisal outcomes rather than a defined maximum for FHA-insured loans. Hence, understanding statutory lending limits is essential for navigating FHA loans properly.