Concepts Definitions
Private Mortgage Insurance (PMI): Mortgage guarantee insurance that protects conventional lenders in case of a borrower’s default, with the premiums typically paid by the borrower. It is applied to loans where the loan-to-value ratio exceeds 80%.
Loan-to-Value (LTV) Ratio: A financial ratio that compares the amount of the mortgage loan to the appraised value or purchase price of the property, whichever is lower.
Conventional Loan: A type of mortgage loan that is not insured or guaranteed by a governmental agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).
FHA Loans: Residential mortgage loans insured by the Federal Housing Administration, which typically allow for lower down payments (e.g., 3.5%) but require mortgage insurance premiums (MIP).
VA Loans: Home mortgage loans partially guaranteed by the U.S. Department of Veterans Affairs, which can offer 100% financing (no down payment) and do not require mortgage insurance.
Default: The failure to fulfill the terms of a loan agreement, most commonly by missing required mortgage payments.
Homeowners’ Protection Act: A federal law that provides for the automatic termination of private mortgage insurance (PMI) when a borrower’s loan-to-value (LTV) ratio reaches certain thresholds, typically below 80%.
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