Housing Counselor Certification (HUD) Practice Exam

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Prepare for the Housing Counselor Certification (HUD) Exam. Use flashcards and multiple choice questions with hints and explanations. Ace your exam!

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A client has saved for a small down payment and closing costs to purchase a $100,000 home. Which loan type would result in the highest monthly payment, assuming other factors are equal?

Conventional Loan
VA Loan
FHA Loan
USDA Loan

The correct answer is: FHA Loan

The FHA Loan typically results in the highest monthly payment among the options listed, primarily due to its mandatory insurance premiums. While FHA loans are designed to assist lower-income borrowers by allowing lower down payments (as low as 3.5%), they also come with an upfront mortgage insurance premium (UFMIP) that can be financed into the loan, as well as a monthly mortgage insurance premium (MIP) that continues for the life of the loan if the down payment is below 10%. This additional insurance cost increases the overall monthly payment. In comparison, both VA and USDA loans are backed by government programs that do not require mortgage insurance, which can lead to lower monthly payments. A Conventional Loan, depending on the terms, may also have lower payments, especially if the borrower has a stronger credit profile and can avoid private mortgage insurance (PMI). Therefore, when considering the overall impact of insurance premiums and monthly payments, an FHA Loan would result in the highest monthly payment in this scenario.