Finance
A Montana lender is considering a loan for a property in a designated Special Flood Hazard Area (SFHA). The lender must notify the borrower and require:
ANo additional requirements since Montana has few flood areas
BFlood insurance under the National Flood Insurance Program (NFIP) if the community participates, as required by the Flood Disaster Protection Act✓ Correct
CPrivate flood insurance only—NFIP is not available in Montana
DA higher down payment as the only requirement
Explanation
Under the Flood Disaster Protection Act, lenders making federally regulated or insured loans for properties in SFHAs in participating NFIP communities must require flood insurance as a condition of the loan.
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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.
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.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
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