Finance
What is the purpose of private mortgage insurance (PMI)?
ATo insure the buyer's personal property
BTo protect the lender if the borrower defaults with less than 20% down✓ Correct
CTo cover title defects discovered after closing
DTo guarantee the appraised value
Explanation
PMI protects the lender — not the borrower — against loss if the borrower defaults when the down payment is less than 20% of the purchase price.
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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.
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.
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.
Math Concepts
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