Finance
What is 'mortgage insurance' and when is it required for Illinois home purchases?
AInsurance against the home burning down; required by all lenders
BInsurance protecting the lender if the borrower defaults; required for conventional loans with less than 20% down (PMI) and for all FHA loans (MIP)✓ Correct
CInsurance required only for properties in flood zones
DInsurance protecting the borrower's monthly payments if they lose their job
Explanation
Mortgage insurance protects lenders against borrower default. For conventional loans with less than 20% down payment, private mortgage insurance (PMI) is required and can be cancelled when equity reaches 20%.
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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.
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.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
State-Specific Concepts
Continuing Education
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