Finance
Private mortgage insurance (PMI) is typically required when:
AThe borrower has a credit score below 700
BThe down payment is less than 20% on a conventional loan✓ Correct
CThe property is in a rural area
DThe loan amount exceeds $500,000
Explanation
PMI is required by most conventional lenders when the borrower's down payment is less than 20% (LTV above 80%). It protects the lender if the borrower defaults.
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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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