Section 6 true/false quiz

FHA and VA loans are considered conventional loans.

False. A conventional loan is any loan not insured or guaranteed by the government

A nonconforming loan is one that meets Freddie Mac's underwriting standards but falls short of the standards set by Fannie Mae.

False. A nonconforming loan is one that doesn't meet standards set by either Fannie Mae or Freddie Mac.

A borrower who obtains a loan requiring private mortgage insurance is required to pay the monthly PMI premiums for the life of the loan.

False. As the borrower pays off the loan and the property appreciates, the loan-to-value ratio decreases. The PMI must be canceled at the borrower's request when the LTV reaches 80%, and without request when the LTV reaches 78%.

In general, a 95% loan is less risky for a lender than an 80% loan.

False. With an 80% loan, the borrower is making a downpayment of 20% (compared to a downpayment of only 5% with a 95% loan). A lender's risk is greater when a borrower's downpayment is smaller.

When a borrower makes a downpayment of less than 20% of the purchase price, the lender will usually require private mortgage insurance.

True.