Finance
A Minnesota homebuyer is purchasing their first home for $250,000 and has excellent credit. Which loan type would likely offer the lowest interest rate?
AFHA loan with 3.5% down
BConventional loan with 20% down
CVA loan (if qualified veteran)✓ Correct
DUSDA loan in a qualifying rural area
Explanation
VA loans typically offer the most competitive interest rates because they are government-guaranteed with no PMI, very competitive rates, and no down payment requirement. However, availability is limited to eligible veterans and service members.
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Key Terms to Know
Private Mortgage Insurance (PMI)
Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Math Concepts
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