Question 7

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

Since the buyer is putting 20 percent down on a fixed-rate conventional loan, they are not required to pay for private mortgage insurance (PMI). PMI is typically required for borrowers who make a down payment of less than 20 percent.

A) need a mortgage insurance premium on the loan

This option is incorrect because a mortgage insurance premium is not required when the borrower puts down 20 percent. In fact, one of the primary benefits of making a larger down payment is the elimination of this insurance cost.

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

This option is incorrect. While some lenders might suggest life insurance as a protective measure for borrowers, it is not a requirement for obtaining a loan. The necessity of life insurance depends on personal circumstances rather than the loan amount or down payment.

C) not need to pay for a title policy

This option is incorrect as well. Regardless of the down payment amount, a title policy is typically required to protect against any potential claims or disputes over property ownership. The need for a title policy is not influenced by the down payment size.

D) not need private mortgage insurance on the loan

This option is correct. When a buyer makes a down payment of 20 percent or more on a conventional loan, they are exempt from the requirement to pay for private mortgage insurance, making this option the most favorable for buyers aiming to minimize their costs.

Conclusion

The correct answer is D because the requirement for private mortgage insurance is eliminated when the down payment is 20 percent or more. All other options incorrectly suggest additional requirements or protections that are not mandated in this scenario. Thus, the buyer benefits by not incurring the additional cost of PMI.