Housing Counselor Certification (HUD) Practice Exam

What is a common requirement for obtaining mortgage insurance?

1. A credit score above 700

2. A down payment of less than 20%

3. A history of on-time payments

4. A fixed-rate mortgage agreement

The correct answer is: A down payment of less than 20%

A down payment of less than 20% is a common requirement for obtaining mortgage insurance, particularly for conventional loans. Lenders typically require mortgage insurance to protect themselves in the event that the borrower defaults on the loan. When borrowers make a down payment that is less than 20% of the home's purchase price, the risk to the lender increases. As a result, they often mandate mortgage insurance to mitigate that risk. This can come in the form of Private Mortgage Insurance (PMI) for conventional loans or mortgage insurance premiums (MIP) for FHA loans. Other factors, such as credit score and payment history, while important in the overall loan approval process, do not universally dictate the requirement for mortgage insurance. Additionally, a fixed-rate mortgage agreement does not inherently influence the necessity for mortgage insurance; rather, it relates to the type of interest rate structure of the mortgage itself. Therefore, the requirement for mortgage insurance is primarily linked to the down payment amount.