Conventional Mortgages Flashcards
One of the most important mortgage products that lenders sell is conventional mortgages, so this section starts chapter four with a logical series of questions to test your knowledge of this very topic. You’ll know exactly what type of clients suit this loan type when you are done
The most common mortgage that a private lender has is a conventional mortgage, but what exactly is this type of mortgage?
A. An insured mortgage.
B. A government-backed mortgage.
C. A private lender mortgage.
D. An endorsed FHA mortgage.
Correct answer: C
C is correct because a conventional mortgage is the most popular private
lender loan you can get for a home. Three factors best categorize a conventional mortgage: no government insurance, high-interest rates, and high credit rating requirements.
There are a host of reasons why a conventional mortgage is popular
with clients, these reasons are seen plainly in the following benefits:
A. The loan has no government insurance.
B. The loan has high income and credit score constraints.
C. Larger down payment requirements than a government loan with lower
fees.
D. A set interest rate that is often less than other loans.
E. All the above.
Correct answer: E
E is correct because a conventional mortgage has no government insurance
allowing an applicant to save money on paying for insurance on top of other
fees (if they pay 20% or more). It also comes with higher income and credit score requirements that leads to lower interest rates that are often set for a period. It is these benefits which make them perfect for the average person that wants to secure a home loan
Despite not being a selling point, does a conventional mortgage still offer insurance?
A. Yes.
B. No.
Correct answer: AA is correct because although most borrowers that secure
a conventional mortgage have a high credit rating, lenders may want to
have some insurance that the loan will be paid back, so they will include
PMI in their mortgage fees. Known as PMI, this is insurance that will cover
the lender if the mortgage goes unpaid. Those that pay less than 20% on a
down payment will often need to pay PMI fees.
It has been stated numerous times that conventional mortgages are very popular, but why is this the case when it isn’t the cheapest or lowest interest rates?
A. Most mortgage borrowers already have good credit scores, incomes, and
sufficient funds.
B. Conventional mortgages offer flexibility and various loan features.
C. Conventional mortgages have no loan limits.
D. They offer lower down payment rates than other mortgages on the market.
E. A & B.
Correct answer: E
E is correct because conventional mortgages offer a great range of benefits
for the average mortgage. This includes the fact that most people who
commit to a home loan have good credit scores, stable incomes, and
sufficient funds, so they are the perfect candidates for this mortgage. They
also offer flexibility and various loan features that other mortgages do not,
such as having fewer restrictions than government-backed loans and fewer
fees. C and D are incorrect, as conventional mortgages have loan limits and
encourage higher down payments of 20% or more to save on money paying
extra for house insurance.
Conventional mortgages are a great loan option for the average
client that helps them save money. Of course, it isn’t just an option for
those that have a 20% down payment ready to go, so what are the
lowest down payment requirements for a conventional mortgage?
A. There are no limits.
B. 1%
C. 3%
D. Conventional loans are not very flexible, with a 20% limit.
Correct answer: C
C is correct because the lowest down payment a lender will accept on a
conventional mortgage is 3%. However, most choose 20% because larger
down payments of 20% or above mean you do not need to get the PMI
insurance set in place for the lender in case the borrower defaults on
payments. A, B, and D are incorrect as conventional mortgages have a
downpayment minimum of 3% or more, and it is a very flexible loan
despite these restrictions.
A conventional mortgage gives borrowers the power to choose their down payment down to 3% of the total amount, but what is the requirement for paying 20% or less for a down payment?
A. That a borrower takes out private mortgage insurance (PMI).
B. That the borrower agrees to more significant repayments.
C. A borrowers agrees to make another down payment at an agreed-upon
date to make it 20%.
D. Any of the above.
Correct answer: AA is correct because lenders must ensure they are covered
if their applicant defaults on repayments. PMI is the private lender’s version
of government insurance, except if the applicant pays the 20% down payment, they do not need to opt into PMI if they desire. This is set to below 20% to encourage higher down payments to save both parties money in the long term. B through D are incorrect as a borrower cannot be forced
to make more repayments or a second down payment to ensure a 20% down
payment is achieved.
It can be confusing what the exact requirements for a conventional
loan are exactly. So, what are the credit score requirements of conventional compared to government ones?
A. A low credit score.
B. A high credit score of 620 or above.
C. No credit history.
D. A & B
Correct answer: B
B is correct because although there is no set amount, the higher the credit score (620), a borrower will get approved for a conventional mortgage. Having no credit history will make it challenging to secure a conventional mortgage loan.
Conventional loans offer many benefits to applicants who have great finances. Do conventional mortgages give borrowers high credit scores and low interest rates?
A. Yes.
B. No.
Correct answer: AA is correct because the higher the credit score, the
borrower has access to better mortgage loans that have lower interest rates.
However, the interest rates of conventional mortgages are higher than
government-insured loans by a small margin, so they do not offer ‘the
lowest.’ However, the upside is they don’t pay PMI if the downpayment is
20% or above.
