82. Most lenders require ___ if down payment <20%:
Answer: D
Private mortgage insurance is required if down payment
Most lenders require private mortgage insurance (PMI) when the down payment is less than 20%. This insurance protects the lender in case the borrower defaults on the loan.
A) one year's reserves in CD
One year's reserves in a certificate of deposit (CD) is not a standard requirement for loans with a down payment under 20%. This option does not reflect common lending practices, as lenders focus on the risk associated with lower down payments rather than requiring reserves in a CD.
B) certificate of reasonable value
A certificate of reasonable value is typically associated with VA loans and is not a requirement for conventional loans with a down payment of less than 20%. Therefore, this option is not relevant to the general lending practices concerning down payments.
C) FICO ≥745
While a higher FICO score can be beneficial in securing a loan, it is not a strict requirement that lenders impose when a borrower makes a down payment of less than 20%. Different lenders have varying criteria, but PMI is the more common requirement in this context.
D) private mortgage insurance
Private mortgage insurance is indeed required by most lenders when a borrower makes a down payment of less than 20%. PMI helps mitigate the lender's risk, making this option the correct choice in the context of the question.
Conclusion
Private mortgage insurance is essential for protecting lenders when borrowers have lower equity in their homes due to smaller down payments. Options A, B, and C do not align with common requirements for loans with down payments under 20%, making option D the definitive correct answer in this scenario.