What is 'mortgage insurance premium' (MIP) versus 'private mortgage insurance' (PMI)?
Why MIP is the insurance required on FHA loans (paid to the government); PMI is insurance on conventional loans (paid to a private insurer); both protect the lender Is Correct
Answer B: MIP is the insurance required on FHA loans (paid to the government); PMI is insurance on conventional loans (paid to a private insurer); both protect the lender
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
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.
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.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
Math Concepts
State-Specific Concepts
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