What is 'mortgage insurance premium' (MIP) and when is it required?
Why MIP is required on FHA loans; it protects the FHA against losses if a borrower defaults. It includes an upfront premium and annual (monthly) premiums Is Correct
Answer B: MIP is required on FHA loans; it protects the FHA against losses if a borrower defaults. It includes an upfront premium and annual (monthly) premiums
Exam Tip: Finance
Finance questions often involve calculations. Master the T-bar method, understand the difference between conventional and government-backed loans, and know key ratios like LTV and DTI.
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Key Terms to Know
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.
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.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
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