Noah has strong credit and plans to put 15% down on a primary residence. His lender says a conventional loan may cost less overall than FHA financing. Which explanation is most accurate?
Correct Answer
A) FHA requires mortgage insurance, so it can be more expensive for good-credit borrowers putting 10-15% down
That explanation is the most accurate. CFPB consumer guidance notes that for borrowers with good credit and a medium down payment, FHA can be more expensive than conventional financing because FHA carries mortgage-insurance costs that may outweigh its benefits for that borrower profile.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Usury is the practice of charging an interest rate that exceeds the maximum rate permitted by state law. Usury laws protect borrowers from excessive interest charges on loans.
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.
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