Private Mortgage Insurance (PMI) is typically required on a conventional loan when the loan-to-value (LTV) ratio exceeds what threshold?
Correct Answer
B) LTV exceeds 80%
PMI is required by conventional lenders when the borrower's down payment is less than 20%, resulting in an LTV ratio above 80%. PMI protects the lender — not the borrower — in the event of default. Under the federal Homeowners Protection Act, lenders must automatically cancel PMI once the LTV reaches 78% of the original purchase price, and borrowers may request cancellation at 80% LTV.
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