Finance
What is 'mortgage insurance premium' (MIP) in FHA loans, and how does it differ from PMI?
AThey are identical products offered by different companies
BMIP is required on all FHA loans and is paid to FHA; PMI is required on conventional loans when LTV exceeds 80% and is paid to private insurers✓ Correct
CMIP is only required for loans over $500,000
DPMI is mandatory for life; MIP is only for 5 years
Explanation
MIP is charged on FHA loans and paid to the FHA as insurance against default. PMI protects private conventional lenders and is charged when conventional borrowers have less than 20% equity.
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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.
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.
Short SaleA sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
Math Concepts
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