Finance
Mortgage insurance on FHA loans is called:
APrivate Mortgage Insurance (PMI)
BMortgage Insurance Premium (MIP)✓ Correct
CLender-Paid Mortgage Insurance (LPMI)
DHazard Insurance
Explanation
FHA loans require Mortgage Insurance Premium (MIP), which includes both an upfront premium at closing and an annual premium collected monthly. This differs from the PMI used on conventional loans.
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Key Terms to Know
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.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Deed of TrustA security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.
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