Question 23

The buyer would not need private mortgage insurance on the loan.

Since the buyer is putting 20% down on a fixed-rate, conventional loan, they will not be required to pay for private mortgage insurance (PMI). This is because PMI is typically mandated for loans where the down payment is less than 20%.

A) need a mortgage insurance premium on the loan

This option is incorrect because a mortgage insurance premium (MIP) is generally associated with FHA loans, not conventional loans. In this case, the buyer is obtaining a conventional loan and is making a 20% down payment, which circumvents the need for PMI.

B) need a life insurance policy equivalent to the amount of the loan

This option is incorrect as there is no requirement for a buyer to obtain a life insurance policy specifically tied to the amount of the loan. While some buyers may choose to purchase life insurance for personal reasons, it is not a standard requirement linked to the loan itself.

C) not need to pay for a title policy

This option is incorrect because buyers generally need to obtain a title policy when purchasing a home, regardless of the loan type. A title policy protects against claims or disputes regarding property ownership and is considered a standard part of the closing costs.

D) not need private mortgage insurance on the loan

This option is correct. Since the buyer is making a 20% down payment, they meet the threshold that typically exempts them from needing to pay for private mortgage insurance (PMI), which is often required for lower down payments.

Conclusion

The correct answer definitively highlights that a 20% down payment allows the buyer to avoid paying for private mortgage insurance, which is a financial burden typically associated with lower down payments. Options A, B, and C fail to address the specifics of loan requirements and insurance needs, reinforcing why D is the only correct choice in this scenario.