Loan Officer Practice Exam

A borrower with a FICO score below 580 is required to make a minimum down payment of at least what percentage for an FHA-insured loan?

1. 10%

2. 3.5%

3. 5%

4. 1%

The correct answer is: 3.5%

For a borrower with a FICO score below 580, the minimum down payment required for an FHA-insured loan is indeed set at 10%. However, it’s important to note that borrowers with a FICO score of 580 or higher benefit from a lower down payment requirement of just 3.5%. The FHA program is designed to support individuals with varying credit profiles, but as creditworthiness decreases, the expectations for financial commitment increase to mitigate the lender’s risk. Additionally, while there are minimum thresholds, the FHA guidelines delineate these requirements clearly based on credit scores. Therefore, it's essential for prospective borrowers to understand these differentiations when considering their financing options, particularly in striving to enhance their chances for approval and favorable terms. In this context, the requirement for a minimum down payment of 10% sits squarely within the risk management framework that FHA loans embody for higher-risk borrowers.