Real Estate Math
A buyer purchases a $400,000 home with a 5% down payment. The lender requires PMI at an annual rate of 0.85% of the loan amount. What is the monthly PMI cost?
A$253.33✓ Correct
B$280.00
C$267.08
D$283.33
Explanation
Down payment: $400,000 × 0.05 = $20,000.
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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.
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.
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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