Finance
Mortgage insurance premium (MIP) on an FHA loan differs from PMI on a conventional loan in that MIP:
ACan be removed once the LTV reaches 80%
BMay be required for the life of the loan depending on the down payment amount✓ Correct
CIs paid only by the lender, not the borrower
DApplies only to loans over $500,000
Explanation
FHA MIP may be required for the entire loan term if the down payment is less than 10%. In contrast, conventional PMI can typically be removed when the borrower reaches 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.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
Math Concepts
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