PSI New Jersey Real Estate State Practice Exam

What is a significant advantage of using FHA financing for home purchases?

1. Lower interest rates

2. Flexible repayment terms

3. The required down payment may be lower than conventional loans

4. No private mortgage insurance required

The correct answer is: The required down payment may be lower than conventional loans

Using FHA financing for home purchases offers a significant advantage in that it typically requires a lower down payment compared to conventional loans. This feature is particularly beneficial for first-time homebuyers or those with limited savings, as it makes homeownership more accessible. The FHA (Federal Housing Administration) was designed to promote homeownership and provide support to borrowers who might not qualify for conventional financing, which usually entails a higher down payment. While it's true that FHA loans often come with competitive interest rates and lenient repayment terms, the standout benefit for many borrowers is the reduced down payment requirement—sometimes as low as 3.5% of the purchase price. Additionally, FHA loans do require private mortgage insurance (PMI); however, the insurance premium may be lower than that of conventional loans depending on the down payment made. Understanding these distinctions helps borrowers make informed decisions regarding their financing options.