Finance
A Maine buyer with a conventional mortgage puts down less than 20%. The lender requires private mortgage insurance (PMI) to protect:
AThe buyer against job loss
BThe lender against borrower default✓ Correct
CThe title insurance company
DThe property against casualty loss
Explanation
PMI protects the lender (not the buyer) against losses if the borrower defaults on a high-LTV loan. Federal law (Homeowners Protection Act) allows borrowers to request PMI cancellation once 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.
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.
Title InsuranceInsurance protecting against financial loss from defects in a property's title that existed before closing but were unknown at the time of purchase.
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.
Math Concepts
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