Private Mortgage Insurance (PMI) is typically required when:
Question & Answer
Review the question and all answer choices
The buyer has excellent credit
Credit quality affects interest rates and loan approval but doesn't determine PMI requirements. Even buyers with excellent credit may need PMI if they make a down payment below 20%.
The down payment is less than 20%
The property is commercial
Commercial properties typically have different financing requirements and don't use conventional residential PMI. This option confuses different property types and their financing structures.
The loan is from a private lender
The source of the loan (private lender vs. conventional) doesn't determine PMI requirements. PMI is based on the loan-to-value ratio, not the type of lender providing the financing.
Why is this correct?
PMI protects lenders when the loan-to-value ratio exceeds 80%, which occurs when the down payment is less than 20%. This is a standard industry practice to mitigate risk for lenders when borrowers have less equity in the property.
Continue Learning
Explore this topic in different formats
More Real Estate Financing Videos
Continue learning with related video lessons
Ready to Ace Your Real Estate Exam?
Access 2,000+ free video lessons covering all 11 exam topics.