Wisconsin Real Estate Sales Practice Exam

What type of loan typically allows for lower down payments than conventional loans?

1. FHA loans

2. VA loans

3. Subprime loans

4. Hard money loans

The correct answer is: FHA loans

FHA loans, which are backed by the Federal Housing Administration, are specifically designed to help first-time homebuyers and those with limited financial resources by allowing lower down payments, often as low as 3.5%. This makes homeownership more accessible to a wider range of individuals and families who may not have substantial savings. FHA loans are particularly popular among buyers with lower credit scores, as they tend to have more lenient credit requirements compared to conventional loans, which typically require larger down payments and higher credit standards. While VA loans also allow for no down payment for qualified veterans and active-duty service members, the question focuses on loans that typically allow for lower down payments in general. Subprime loans and hard money loans, while they may have flexible lending criteria, often come with higher interest rates and additional risks, making them less favorable for standard home financing compared to FHA loans.