A borrower is purchasing a $300,000 home with a 10% down payment and obtaining PMI. The PMI factor is 0.55% annually. What is the monthly PMI payment that should be included in the front-end DTI calculation?
Correct Answer
A) $123.75
PMI is calculated on the loan amount, not the property value. Loan amount = $300,000 - (10% × $300,000) = $270,000. Annual PMI = $270,000 × 0.55% = $1,485. Monthly PMI = $1,485 ÷ 12 = $123.75. PMI is included in the front-end DTI calculation as part of the housing payment.
Why This Is the Correct Answer
PMI is calculated on the loan amount, not the property value. Loan amount = $300,000 - (10% × $300,000) = $270,000. Annual PMI = $270,000 × 0.55% = $1,485. Monthly PMI = $1,485 ÷ 12 = $123.75. PMI is included in the front-end DTI calculation as part of the housing payment.
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