Question 91

Private mortgage insurance is typically required for buyers putting less than 20% down.

Lenders generally require private mortgage insurance (PMI) when a buyer makes a down payment that is less than 20% of the home's purchase price. This insurance protects the lender in case of default by the borrower.

A) one year's worth of reserves in a certificate of deposit

While having reserves can be beneficial for a borrower, lenders do not specifically require one year's worth of reserves in a certificate of deposit for buyers putting less than 20% down. This option is not standard practice compared to the requirement for private mortgage insurance.

B) a certificate of reasonable value

A certificate of reasonable value is associated with VA loans and is not a general requirement for all lenders when a buyer puts less than 20% down on a conventional loan. Therefore, this option does not apply to the question context.

C) a FICO score of at least 745

While a higher FICO score can enhance a borrower's chances of approval and favorable terms, it is not a universal requirement for all lenders when the down payment is less than 20%. Many lenders have varying criteria for credit scores, making this option incorrect in this context.

D) private mortgage insurance

Private mortgage insurance is mandated by most lenders when a buyer's down payment is less than 20%. This insurance mitigates the lender's risk, ensuring that they are protected in the event of borrower default. Hence, this option is the correct answer.

Conclusion

Private mortgage insurance is a common requirement for borrowers who cannot meet the 20% down payment threshold, protecting lenders from potential losses. In contrast, the other options presented do not align with the standard practices of lenders in such scenarios, making them incorrect. Therefore, option D stands out as the definitive requirement in this context.