Finance
What is 'private mortgage insurance' (PMI) and when is it required in Pennsylvania?
AInsurance protecting the borrower against property damage
BInsurance protecting the lender when the borrower's down payment is less than 20% of the purchase price✓ Correct
CTitle insurance required by Pennsylvania law for all transactions
DLife insurance required by lenders on all Pennsylvania mortgages
Explanation
Private mortgage insurance (PMI) protects the lender against borrower default when the loan-to-value ratio exceeds 80% (down payment less than 20%). Pennsylvania buyers putting down less than 20% on conventional loans typically pay PMI premiums (0.
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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.
Title InsuranceInsurance protecting against financial loss from defects in a property's title that existed before closing but were unknown at the time of purchase.
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.
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