Environmental
A Rhode Island property is located in a FEMA-designated Special Flood Hazard Area (SFHA). What is required of the mortgage lender?
AThe lender must refuse to make the loan
BThe lender must require the borrower to purchase flood insurance✓ Correct
CThe lender must reduce the interest rate for flood zone properties
DThe lender must notify CRMC of the transaction
Explanation
Lenders making federally-backed loans on properties in FEMA Special Flood Hazard Areas are required by the National Flood Insurance Act to require the borrower to purchase flood insurance as a condition of the loan.
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Key Terms to Know
Discount Points
Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
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.
ContingencyA condition in a purchase contract that must be satisfied before the sale can proceed to closing.
Short SaleA sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
Math Concepts
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