Difficulty: Medium

Average Score: 62%

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.

When a buyer puts down 20% on a fixed-rate, conventional loan, they typically exceed the threshold that requires private mortgage insurance (PMI), which is usually mandated for down payments less than 20%. This allows the buyer to avoid the additional expense of PMI, making their loan more cost-effective.

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

A mortgage insurance premium (MIP) is generally associated with FHA loans or specific loans with lower down payments. Since the buyer in this scenario puts down 20%, they do not require mortgage insurance, which is designed to protect lenders when borrowers have less equity in the property.

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

While obtaining a life insurance policy can be a prudent financial decision, it is not a requirement tied to the loan type or down payment percentage. Life insurance policies are optional and serve different purposes, such as providing financial security for dependents, rather than being a condition of loan approval.

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

A title policy is generally necessary to protect against potential claims or disputes over property ownership. Regardless of the down payment amount, a title policy is typically required by lenders to ensure clear title transfer and to mitigate risks associated with ownership disputes.

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

With a 20% down payment, the buyer is exempt from needing private mortgage insurance (PMI). This exemption is due to the substantial equity provided at the outset, which reduces the lender's risk and eliminates the requirement for PMI, thus saving the borrower money.

Conclusion

In summary, when a buyer makes a 20% down payment on a fixed-rate, conventional loan, they avoid the necessity of private mortgage insurance, which is typically required for lower down payments. This financial strategy not only reduces loan costs but also enhances the buyer's equity from the start. Other options such as mortgage insurance premiums, life insurance policies, and title policies serve different purposes and are not contingent on the size of the down payment.

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