Conventional loans (overview)

Question 1

For a conventional loan, the interest rate is ____ between lender and borrower and reflect market conditions

Answer 1

negotiated

Question 2

Fixed-rate conventional loans include a _____ clause (not assumable)

Answer 2

due-on-sale

This clause requires the borrower to pay off the loan if the property is sold.

Question 3

A _______ clause is contained in fixed-rate conventional mortgages and allows borrowers to prepay principal

Answer 3

prepayment

This allows borrowers to reduce their overall interest costs by paying down the loan earlier.

Question 4

Conventional loans require the borrower to make a ______ (larger/smaller) down payment (equity) compared with nonconventional loans

Answer 4

larger

This means borrowers typically need more equity upfront for conventional loans.

Question 5

What kind of insurance is required for conventional loans that finance more than 80% of the purchase price?

Answer 5

Private mortgage insurance (PMI)

PMI is designed to protect lenders in case of borrower default.

Question 6

PMI protects _____ in case the borrower defaults

Answer 6

lenders

Lenders are compensated for the risk of loss due to borrower default.

Question 7

Conventional loans have more _____ qualifying requirements compared with nonconventional loans

Answer 7

stringent

This means that borrowers may face stricter credit and financial criteria.