Tennessee Real Estate Exam Practice Question
What would most lenders require if the buyer is putting less than 20% down?
Correct Answer: D
Rationale: When a buyer puts down less than 20%, lenders typically require private mortgage insurance (PMI) to protect against potential defaults. PMI mitigates the lender's risk, as it covers a portion of the loan amount in case of foreclosure.
Option A, requiring one year's worth of reserves, is not a standard lender requirement for low down payments. Option B, a certificate of reasonable value, pertains to VA loans and is not universally applicable. Option C, a FICO score of at least 745, is above the threshold for most loans; many lenders accept lower scores. Thus, PMI is the essential requirement for buyers with less than 20% down.
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