Nationwide Mortgage Licensing System (NMLS) Practice Exam

Which of the following is NOT a benefit of an FHA loan?

1. Favorable interest rates

2. Low down payment

3. No monthly mortgage insurance

4. Assumable

The correct answer is: No monthly mortgage insurance

The correct answer highlights a common misconception about FHA loans. While FHA loans offer several advantages, one of their defining features is the requirement for monthly mortgage insurance premiums, which borrowers must pay as part of their financing costs. This feature is designed to protect the lender in case the borrower defaults on the loan, given that FHA loans are generally offered to borrowers with less-than-perfect credit and lower down payments. Thus, while FHA loans provide favorable interest rates, low down payments, and are assumable by qualified buyers, they do not eliminate the requirement for monthly mortgage insurance, making option C the correct choice in this context. Understanding FHA loans involves knowing that the presence of mortgage insurance is a standard condition due to the low risk tolerance associated with these types of loans, contrasting with conventional loans where avoiding private mortgage insurance could be possible. This is an essential aspect of FHA financing that borrowers should consider when evaluating their mortgage options.