Housing Counselor Certification (HUD) Practice Exam

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Prepare for the HUD Housing Counselor Certification Exam with comprehensive flashcards and multiple choice questions that offer hints and detailed explanations. Get ready to excel!

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What is a key difference between FHA-insured mortgages and private mortgage insurance?

FHA-insured mortgages require insurance till the loan is paid off
Private mortgage insurance is always more expensive than FHA
FHA loans are only for first-time home buyers
Private mortgage insurance is available only for government loans

The correct answer is: FHA-insured mortgages require insurance till the loan is paid off

The distinction between FHA-insured mortgages and private mortgage insurance primarily revolves around the length of time that insurance is required. FHA-insured mortgages mandate that mortgage insurance premiums (MIP) be paid for the duration of the loan period, unless the borrower puts down a significant upfront payment which could allow for the cancellation of MIP after a certain number of years. This ensures that lenders are protected throughout the life of the loan against borrower default. In contrast, private mortgage insurance (PMI) can typically be canceled once the borrower has built up sufficient equity in their home, usually when the loan-to-value ratio drops to 80%, enabling borrowers to save on insurance costs once they reach that threshold. Understanding this difference is crucial for housing counselors as they guide clients through mortgage options and the associated costs over time.