Finance
A Hawaii buyer is purchasing a $700,000 home with a conventional loan and 10% down. What is the approximate LTV, and will PMI be required?
AA. 90% LTV; PMI required✓ Correct
BB. 10% LTV; PMI not required
CC. 90% LTV; PMI not required because it's a conventional loan
DD. 70% LTV; PMI required
Explanation
LTV = 90% ($630,000 / $700,000). PMI is typically required for conventional loans with LTV above 80%.
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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.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
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.
Math Concepts
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