Two buyers have little cash for a down payment on a three-unit building they will live in. They use a government program that permits 3.5 percent down and requires mortgage default insurance paid into the Mutual Mortgage Insurance fund. What did they use?
Correct Answer
D) An FHA-insured loan from an approved lender with Mutual Mortgage Insurance
The FHA insures loans made by approved lenders; it does not lend. The premium goes into the Mutual Mortgage Insurance fund, and 3.5 percent down is the FHA minimum for a borrower who will occupy the property, which a three-unit building qualifies for. Other choices: conventional loans use private mortgage insurance, not MMI, and do not go to 3.5 percent down on this basis; the FHA making the loan itself is the standing misconception about the programme; and a VA guaranty has no mortgage insurance at all, which is one of the things that distinguishes it.
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Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
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