Which type of mortgage loan typically requires a lower down payment?

• A. Conventional loan
• B. FHA loan
• C. VA loan
• D. ARM (Adjustable Rate Mortgage)

Answer: (B)

FHA loans are designed to lower the barrier to homeownership, particularly for first-time buyers and those with less-than-perfect credit. One of the key features of FHA loans is their down payment requirement, which can be as low as 3.5% of the purchase price for borrowers with a credit score of 580 or higher. This reduced down payment requirement makes FHA loans appealing to those who may not have substantial savings to put down when buying a home.

FHA loans are typically backed by the Federal Housing Administration, which allows lenders to offer more flexible underwriting criteria and lower down payment options compared to conventional loans. In contrast, conventional loans usually require a down payment of 5% to 20%, depending on the lender and the borrower's financial situation. VA loans, available to eligible veterans and service members, additionally allow for no down payment, but they require specific qualifications based on military service. Adjustable Rate Mortgages (ARMs) do not inherently determine down payment requirements, as they refer to the loan structure rather than the down payment amount.

Thus, when considering the requirement for a lower down payment specifically, FHA loans are the most suitable option.