Which statement is true about FHA loans?

Which statement is true about FHA loans?

• A. They require mortgage insurance and have low down payment.
• B. They require no mortgage insurance.
• C. They require private mortgage insurance (PMI) only.
• D. They require 20% down payment.

Answer: (A)

FHA loans are designed to help buyers with smaller down payments, and their defining feature is mandatory mortgage insurance. The loan carries both an upfront mortgage insurance premium and a monthly mortgage insurance premium, which protects lenders when a borrower defaults. This insurance makes lenders more willing to offer financing with a low down payment. Because of this structure, FHA loans allow a down payment as low as about 3.5% for borrowers who meet credit requirements. So the statement that FHA loans require mortgage insurance and have a low down payment is true. It’s not PMI (private mortgage insurance) and it does not require a 20% down payment.

FHA loans are designed to help buyers with smaller down payments, and their defining feature is mandatory mortgage insurance. The loan carries both an upfront mortgage insurance premium and a monthly mortgage insurance premium, which protects lenders when a borrower defaults. This insurance makes lenders more willing to offer financing with a low down payment. Because of this structure, FHA loans allow a down payment as low as about 3.5% for borrowers who meet credit requirements. So the statement that FHA loans require mortgage insurance and have a low down payment is true. It’s not PMI (private mortgage insurance) and it does not require a 20% down payment.