Which statement about PMI on conventional loans is true?

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Study for the Burk Baker National Test. Use flashcards and multiple choice questions with hints and explanations to prepare effectively. Get ready for your exam!

Multiple Choice

Which statement about PMI on conventional loans is true?

Explanation:
PMI on conventional loans exists to protect the lender when a borrower has a high loan amount relative to the home’s value. When the down payment is less than 20%, the loan-to-value ratio is above 80%, and lenders typically require PMI to offset the risk of default and foreclosure. That’s why the statement that PMI protects the lender when the loan-to-value ratio exceeds 80% is correct. PMI is not insurance for the borrower, it doesn’t cover property taxes, and conventional loans can require PMI when LTV is above 80% (so saying it’s never required isn’t accurate).

PMI on conventional loans exists to protect the lender when a borrower has a high loan amount relative to the home’s value. When the down payment is less than 20%, the loan-to-value ratio is above 80%, and lenders typically require PMI to offset the risk of default and foreclosure. That’s why the statement that PMI protects the lender when the loan-to-value ratio exceeds 80% is correct. PMI is not insurance for the borrower, it doesn’t cover property taxes, and conventional loans can require PMI when LTV is above 80% (so saying it’s never required isn’t accurate).

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