85. What would most lenders require if the buyer is putting less than 20% down?
Answer: D
Lenders typically require private mortgage insurance when the buyer puts less than 20% down.
When a buyer puts down less than 20% of the home's purchase price, most lenders require private mortgage insurance (PMI) to protect themselves against the risk of default. This insurance covers a portion of the lender's losses if the borrower fails to repay the loan.
A) one year’s worth of reserves in a certificate of deposit
Requiring one year's worth of reserves in a certificate of deposit is not a standard practice for lenders when the down payment is less than 20%. While having reserves can be beneficial for the borrower's financial profile, it is not a typical requirement in this scenario.
B) certificate of reasonable value
A certificate of reasonable value is generally associated with VA loans and is not a requirement for conventional loans when a buyer puts less than 20% down. This option does not relate directly to the down payment percentage or the lender's requirements for insurance.
C) FICO score of at least 745
While a high FICO score can improve a borrower's chances of securing a loan, it is not a specific requirement for those putting less than 20% down. Lenders may have varying credit score requirements, but PMI is the primary concern in this context, making this option incorrect.
D) private mortgage insurance
Private mortgage insurance is a standard requirement for most lenders when a buyer puts down less than 20%. It provides financial protection to lenders in the event that the borrower defaults on the loan, making this option the correct answer.
Conclusion
Private mortgage insurance is essential for lenders to mitigate risk when a buyer's down payment is below the 20% threshold. The other options mentioned do not fulfill the specific requirement that lenders have in this situation, reinforcing that option D is the only correct choice.