Finance
When a lender requires a buyer to purchase homeowner's insurance as a condition of the loan, the lender is protecting:
AOnly the buyer
BThe lender's security interest in the property✓ Correct
CThe seller's equity
DThe title insurance company
Explanation
Lenders require homeowner's insurance to protect their security interest (collateral) in the property. If the property is destroyed, the insurance proceeds can pay off the loan.
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Key Terms to Know
Title Insurance
Insurance protecting against financial loss from defects in a property's title that existed before closing but were unknown at the time of purchase.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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