Difficulty: Easy

Average Score: 100%

A buyer wants a fixed-rate, conventional loan and puts 20% down. The buyer would

Rationale

A buyer would not need private mortgage insurance on the loan.

Since the buyer is making a 20% down payment on a fixed-rate, conventional loan, they exceed the typical threshold that requires private mortgage insurance (PMI). By putting down 20%, the buyer demonstrates a lower risk to the lender, eliminating the need for PMI.

A (need a mortgage insurance premium on the loan) YOUR ANSWER

This choice is incorrect because mortgage insurance premiums are generally required when the down payment is less than 20% of the home's purchase price. Since the buyer is providing a 20% down payment, there is no requirement for a mortgage insurance premium.

B (need a life insurance policy equivalent to the amount of the loan) YOUR ANSWER

This option is also incorrect, as life insurance policies are not mandated when obtaining a mortgage. While some may choose to have life insurance to cover mortgage payments in the event of their death, it is not a requirement for securing a loan.

C (not need to pay for a title policy) YOUR ANSWER

This statement is misleading because while the buyer may not need PMI, the requirement for a title policy is separate and typically necessary to protect against any issues with property ownership. A title policy is usually a standard part of closing costs regardless of the down payment amount.

D (not need private mortgage insurance on the loan) CORRECT

This is the correct statement as explained earlier. A down payment of 20% on a conventional loan allows the buyer to avoid the additional cost of private mortgage insurance, which is designed to protect the lender in case of default.

Conclusion

When a buyer makes a 20% down payment on a fixed-rate, conventional loan, they eliminate the need for private mortgage insurance, which is a requirement for lower down payments. This makes the financing process more affordable and advantageous for buyers who can afford to put down a larger initial sum. Understanding these requirements helps buyers make informed decisions regarding their mortgage options.

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