FinanceIntermediateCalifornia Exam

What is PMI and when is it typically required?

AProperty Management Insurance — always required

BPrivate Mortgage Insurance — required when LTV exceeds 80%Correct

CPrimary Market Index — used to set interest rates

DProperty Market Indicator — used by appraisers

Why Private Mortgage Insurance — required when LTV exceeds 80% Is Correct

Answer B: Private Mortgage Insurance — required when LTV exceeds 80%

PMI (Private Mortgage Insurance) protects the lender if the borrower defaults. It's typically required when the down payment is less than 20% (LTV above 80%).

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.

People Also Study

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.

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.

Deed of Trust

A security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.