Lisa is applying for an FHA loan to purchase a single-family home in Rochester, New York. What is a key characteristic of FHA loans that differs from conventional loans?
Correct Answer
A) FHA loans require mortgage insurance premium (MIP) payments
FHA loans require mortgage insurance premium (MIP) payments to protect the lender against default. This includes both an upfront MIP and annual MIP payments, which is a key distinguishing feature from conventional loans that may not require mortgage insurance if the borrower puts down 20% or more.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
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