What mortgage type requires a higher down payment and typically has higher interest rates?

What mortgage type requires a higher down payment and typically has higher interest rates?

• A. Conventional Loan
• B. FHA Loan
• C. VA Loan
• D. USDA Loan

Answer: (A)

The correct answer is the conventional loan. Conventional loans are typically not government-backed, which can lead to stricter lending requirements compared to other loan types. As a result, they often require a higher down payment, which is generally around 20% for many lenders to avoid private mortgage insurance (PMI). Moreover, due to the perceived risk associated with conventional loans, they can also come with higher interest rates, especially for borrowers who may have less than stellar credit histories. These factors make conventional loans distinct when compared to FHA loans, which are designed to assist first-time homebuyers with lower down payment options, VA loans that are tailored for veterans and often come without the need for a down payment, and USDA loans which are aimed at rural property buyers and offer low or no down payment options coupled with competitive interest rates.

The correct answer is the conventional loan. Conventional loans are typically not government-backed, which can lead to stricter lending requirements compared to other loan types. As a result, they often require a higher down payment, which is generally around 20% for many lenders to avoid private mortgage insurance (PMI).

Moreover, due to the perceived risk associated with conventional loans, they can also come with higher interest rates, especially for borrowers who may have less than stellar credit histories. These factors make conventional loans distinct when compared to FHA loans, which are designed to assist first-time homebuyers with lower down payment options, VA loans that are tailored for veterans and often come without the need for a down payment, and USDA loans which are aimed at rural property buyers and offer low or no down payment options coupled with competitive interest rates.