Private Mortgage Insurance (PMI) is typically required on a conventional loan when the loan-to-value (LTV) ratio exceeds which threshold?
Correct Answer
B) 80%, meaning the borrower has made a down payment of less than 20%
PMI is required on conventional loans when the loan-to-value ratio exceeds 80%, which occurs when the borrower's down payment is less than 20%. 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% based on the original amortization schedule.
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Related Topics & Key Terms
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Related Concepts
Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
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