Finance
What is the purpose of private mortgage insurance (PMI)?
ATo protect the borrower if they lose their job
BTo protect the lender if the borrower defaults✓ Correct
CTo insure the property against damage
DTo guarantee the appraisal value
Explanation
PMI protects the lender (not the borrower) against losses if the borrower defaults. It is typically required when the down payment is less than 20% of the purchase price.
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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.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
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.
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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