How does a conventional loan differ from an FHA loan regarding down payment and mortgage insurance?

• A. Conventional loans typically require private mortgage insurance for any LTV, with a minimum down payment of 3%.
• B. Conventional loans typically require private mortgage insurance only if LTV > 80%; may allow down payments as low as 3% with higher credit standards; FHA requires a minimum down payment as low as 3.5% and mortgage insurance.
• C. Conventional loans always require 20% down and do not use PMI; FHA has no down payment and no MIP.
• D. Conventional loans require 3% down and MIP; FHA requires 15% down.

Answer: (B)

The main idea is how mortgage insurance and down payment requirements differ by loan type. Conventional loans typically require private mortgage insurance only when your loan-to-value is greater than 80% (that is, when your down payment is less than 20%). They can allow down payments as low as about 3% if you meet stricter credit and income standards, but you’ll pay PMI and the terms may be less favorable. FHA loans, on the other hand, require a minimum down payment of 3.5% and carry mortgage insurance premiums (MIP), which are baked into the loan (upfront and ongoing). So the best choice captures that contrast: conventional loans often use PMI only above 80% LTV and can allow down payments around 3% with higher qualification hurdles, while FHA requires 3.5% down and includes MIP. The other options miss or reverse these details about down payments and the type of insurance.