California Real Estate Practice Exam

Which of the following is true about FHA loans?

1. They are only for first-time home buyers

2. They require no mortgage insurance

3. They require a down payment

4. They have no borrowing limits

The correct answer is: They require a down payment

FHA loans, which are designed to make homeownership more accessible, do indeed require a down payment. This down payment is typically lower than what is required for conventional loans, making FHA loans an attractive choice for many borrowers. Generally, the minimum down payment is 3.5% of the purchase price, which opens the door for individuals who may not have substantial savings. It is a common misconception that FHA loans are exclusively for first-time home buyers, but they can actually be utilized by anyone looking to finance a home, as long as they meet the loan requirements. While FHA loans do require mortgage insurance, which protects lenders in case of default, it’s also important to note that there are limits to how much you can borrow with an FHA loan, depending on the area and property type. Therefore, the necessity of a down payment is a fundamental aspect of FHA loans that helps maintain the stability of these government-backed financing options.