Nationwide Mortgage Licensing System (NMLS) Practice Exam

What type of loan allows buyers to purchase property with little to no down payment?

1. Conventional loan

2. FHA loan

3. VA loan

4. USDA loan

The correct answer is: FHA loan

The FHA loan is designed to help buyers, particularly first-time homeowners, to purchase property with a lower down payment requirement. FHA loans are backed by the Federal Housing Administration, which allows lenders to offer more favorable terms to borrowers with lower credit scores or limited funds for a down payment. In many cases, borrowers can secure an FHA loan with as little as 3.5% down, and in some specific scenarios, it's possible to finance almost the entire purchase price with little to no down payment required. This makes FHA loans particularly appealing to buyers who may not have significant savings but are ready to own a home. The backing by the government reduces the risk for lenders, encouraging them to provide financing options that cater to those who are entering the housing market for the first time. While other loan types mentioned, like the VA or USDA loans, also offer benefits with little to no down payment, the primary focus here is the FHA loan's accessibility specifically for buyers with lower financial resources. VA loans, for instance, are exclusively for veterans and active-duty service members, and USDA loans are aimed at rural property buyers with specific income guidelines. Conventional loans typically do not provide such advantageous terms for down payments, generally requiring at least 5-20%, which disqual