19. What would most lenders require if the buyer is putting less than 20% down
Answer: D
Private mortgage insurance is typically required for buyers putting less than 20% down.
When a buyer makes a down payment of less than 20%, most lenders require private mortgage insurance (PMI) to protect themselves in case of default. This insurance helps mitigate the risk associated with lower equity in the property.
A) one year's worth of reserves in a certificate of deposit
This option is incorrect because while having reserves can be beneficial for a borrower, most lenders do not require a specific amount of reserves in a certificate of deposit for buyers putting down less than 20%. The primary concern for lenders in this scenario is usually related to insurance rather than reserves.
B) a certificate of reasonable value
This choice is also incorrect. A certificate of reasonable value pertains to properties that have undergone a VA appraisal, and it is not a standard requirement for all buyers putting less than 20% down. Lenders focus on other criteria, particularly when it comes to risk management.
C) a FICO score of at least 745
While credit scores are important in the lending process, lenders do not universally require a FICO score of at least 745 for buyers with a down payment of less than 20%. Requirements can vary significantly based on lender policies and the type of loan, making this option not universally applicable.
D) private mortgage insurance
This is the correct answer as private mortgage insurance (PMI) is a common requirement for buyers who make a down payment of less than 20%. PMI protects the lender against potential losses in case the borrower defaults on the mortgage, making it a crucial aspect of financing for lower down payment scenarios.
Conclusion
Private mortgage insurance is specifically designed to reduce the risk for lenders when borrowers do not have significant equity in their homes. Since options A, B, and C do not address the lender's primary concern of risk mitigation in this context, they are not suitable answers. Thus, option D is the definitive choice in this scenario.