Question

Private mortgage insurance is required for residential mortgage loans if the loan-to-value ratio is in excess of:

Selections

A. 60%

B. 70%

C. 80%

D. 90%

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Answer: C

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5 Keys Summary

• Private mortgage insurance (PMI) is typically required for residential mortgage loans when the loan-to-value (LTV) ratio exceeds 80%.

• This insurance requirement applies when the borrower pays a down payment that is less than 20% of the property’s value.

• The primary purpose of PMI is to safeguard the lending institution (conventional lenders) against financial loss should the borrower default on the mortgage loan.

• Mortgage insurance enables residential borrowers to obtain loans with higher LTV ratios and smaller down payments, making loans with ratios in excess of 80% require coverage.

• Loans secured by 1 to 4 family dwellings that have loan-to-value ratios above 80 percent must carry private mortgage insurance coverage.

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