Michigan Real Estate Salesperson Practice Exam

The correct choice pertains to the conventional loan, which typically offers lower interest rates when buyers pay points upfront. Points are fees paid directly to the lender at closing in exchange for a reduced interest rate on the loan, effectively lowering the long-term cost of borrowing. This feature rewards buyers who are willing to make an upfront investment to secure a better interest rate, which can result in significant savings over the life of the loan.

In contrast, FHA and VA loans have different structures and purposes. FHA loans are designed to assist first-time homebuyers and those with lower credit scores, often coming with higher fees and mortgage insurance costs. VA loans, while offering favorable terms to eligible veterans, do not typically allow for the same flexibility in adjusting rates through upfront payments in the same way that conventional loans can. Jumbo loans are non-conforming loans that exceed federal limits and usually carry higher interest rates due to the increased risk to lenders, making them less favorable for rate reduction through upfront payments.