Private Mortgage Insurance (PMI) is typically required on a conventional loan when the loan-to-value (LTV) ratio exceeds what percentage?
Correct Answer
B) 80% LTV
PMI is typically required on conventional loans when the borrower's down payment is less than 20%, meaning the loan-to-value ratio exceeds 80%. PMI protects the lender in the event of borrower default. Once the borrower builds sufficient equity and the LTV drops to 80% or below, they may request cancellation of PMI under the federal Homeowners Protection Act.
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Related Topics & Key Terms
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Key Terms:
Related Concepts
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
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