Financing Your Purchase Quiz

Buying a home is one of the biggest, most important investments you’ll make. It’s important to understand the financing options available to you and how you’ll qualify.

Start by educating yourself about the different types of mortgages, the factors in qualifying for a loan, down payments and private mortgage insurance. Then, test your knowledge with this quiz.

1

How much of a down payment do you need to purchase a home?

It depends. Lenders typically require between a 5% and 20% down payment on a home. Sometimes down payment requirements are as low as 3% for certain qualified borrowers.

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2

What are the four primary factors – often referred to as the "4 C’s" – that lenders use to determine a person's ability to pay back a loan?

The 4 C’s are credit, capital, collateral and capacity. These are the four elements that lenders evaluate to see if you qualify for a mortgage.

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3

When will the interest rate adjust on a 3/1 adjustable-rate mortgage?

A 3/1 ARM has a fixed interest rate for the first three years. After three years, the rate can change once every year for the remaining life of the loan. The same principle applies for a 5/1 and 7/1 ARM.

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4

When buying a home, when are you required to have private mortgage insurance?

If your down payment on the home is less than 20% of the appraised value or sale price, you’ll have to pay for private mortgage insurance (PMI). Once your equity in the home is above 20%, you no longer need to pay PMI.

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5

Which mortgage type provides stable payments over the longest period of time?

Fixed-rate mortgages offer long-term stability. Because the interest rate never changes, the monthly principal and interest payments never change either.

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Great job! It looks like you’re pretty clear on what it takes to finance a home. Keep up the good work!

You’re on the right track. Consider learning more about how the financing process works. Knowledge is power!

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