Finance
What is the purpose of private mortgage insurance (PMI)?
ATo protect the buyer if the property value declines
BTo protect the lender if the borrower defaults and the property sells for less than the loan balance✓ Correct
CTo insure the title against defects
DTo protect the seller from buyer default
Explanation
PMI (private mortgage insurance) protects the lender, not the buyer, against loss if the borrower defaults. It is typically required when the down payment is less than 20% (LTV greater than 80%) on a conventional loan.
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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.
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.
Short SaleA sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
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.
Math Concepts
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