48. What would most lenders require if the buyer is putting less than 20% down?
Answer: D
Private mortgage insurance is typically required if the buyer is putting less than 20% down.
Lenders usually require private mortgage insurance (PMI) when a buyer makes a down payment of less than 20% to protect themselves against the risk of default.
A) one year's worth of reserves in a certificate of deposit
This option is incorrect as lenders do not typically require reserves in a certificate of deposit for down payments under 20%. The focus is on ensuring that the borrower can make their mortgage payments, which is not specifically addressed by reserves in a CD.
B) a certificate of reasonable value
A certificate of reasonable value relates to the appraisal of the property rather than the buyer's down payment. This option does not address the requirements for down payments under 20%, making it an incorrect choice.
C) a FICO score of at least 745
While lenders may have minimum credit score requirements, a FICO score of 745 is not a standard requirement specifically associated with down payments under 20%. Therefore, this option is not relevant to the question at hand.
D) private mortgage insurance
This option is correct because private mortgage insurance is required by most lenders when the buyer's down payment is less than 20%. PMI protects the lender in case of borrower default, making it a common stipulation for lower down payments.
Conclusion
Private mortgage insurance is the definitive requirement for buyers making a down payment of less than 20%, as it mitigates the lender's risk. Other options, such as reserves or credit scores, do not specifically address the down payment issue and are therefore not applicable in this context.