Question

Based on costs alone which borrower below would find the FHA Loan the most suitable for their borrowing needs: a. A borrower with a credit score of 490 and 3.5% down payment b. A borrower with a credit score of 550 and 10% down payment c. A borrower with a credit score of 660 and 15% down payment d. A borrower with a credit score of 750 and 20% down payment

Answer 1

A FHA loan has the minimum down payment required compared to the other loans. The down payment required is only 3.5%

But for that the credit score needs to be above 580. But there is a second option for it. If the credit score is between 500-579, the down payment of 10% is required.

Here we have 4 options.

1. Credit score- 490, Down payment – 3.5% = not applicable as the credit score is lower than 500
2. Credit score = 550, down payment- 10%= applicable for FHA as the credit score is between 500-479 and the down payment of 10% us available.
3. Credit score 660, down payment 15%= applicable but not optimal for borrower , because he can get the loan at 3.5% down payment and he will be giving away extra money than required at the time. In this case the conventional loan will be a better option
4. Credit score 770, down payment 20%= applicable but not optimal for borrower , because he can get the loan at 3.5% down payment and he will be giving away extra money than required at the time. In this case the conventional loan will be a much better option because he will not need to pay mortgage insurance and less insurance premium and other upfront fees. So it will be more cost effective.

Answer is option B.