Final answer:
For an FHA loan, the required down payment is 3.5% of the purchase price. For a $130,000 town house, this comes to $4,550. A down payment less than 20% usually requires additional mortgage insurance.
Step-by-step explanation:
When using an FHA loan to purchase a home, the required down payment is often lower compared to conventional loan down payments. For an FHA loan, the minimum required down payment is typically 3.5% of the purchase price.
Since the student is buying a town house for $130,000, we calculate the down payment by multiplying the purchase price by the down payment percentage.
Down Payment Calculation:
$130,000 (purchase price) × 0.035 (3.5% down payment) = $4,550
Therefore, the required down payment with an FHA loan for a $130,000 town house would be $4,550. Keep in mind that with a down payment lower than 20%, the buyer will also likely need to obtain mortgage insurance, which protects the lender in case of default and adds to the overall cost of the mortgage.