Podcast
Questions and Answers
Under what circumstances is Private Mortgage Insurance (PMI) typically required?
Under what circumstances is Private Mortgage Insurance (PMI) typically required?
- When borrowers refinance with more than 20% equity
- When borrowers have a credit score below 600
- When borrowers choose a government loan program
- When borrowers make a down payment of less than 20% (correct)
What is the primary benefit of PMI for lenders?
What is the primary benefit of PMI for lenders?
- It reduces lender risk enabling higher LTV ratio loans (correct)
- It allows for lower interest rates on mortgages
- It guarantees full repayment of the loan
- It provides financial training for borrowers
When can PMI be terminated during the life of the loan?
When can PMI be terminated during the life of the loan?
- After 5 years of regular payments
- At a specified point determined by the lender's policy (correct)
- When the loan-to-value ratio exceeds 80%
- When the borrower reaches a 50% equity stake
How is PMI typically paid by borrowers?
How is PMI typically paid by borrowers?
What does Lender Paid Mortgage Insurance (LPMI) involve?
What does Lender Paid Mortgage Insurance (LPMI) involve?
Which statement is true regarding the coverage of PMI?
Which statement is true regarding the coverage of PMI?
What information must be submitted to obtain government mortgage insurance?
What information must be submitted to obtain government mortgage insurance?
Which agency typically requires PMI for loans with less than 20% equity?
Which agency typically requires PMI for loans with less than 20% equity?
What must borrowers provide at closing in relation to homeowners insurance?
What must borrowers provide at closing in relation to homeowners insurance?
Which of the following loan programs usually require homeowners insurance to be paid through escrow?
Which of the following loan programs usually require homeowners insurance to be paid through escrow?
What type of insurance is specifically required when a property is in a high-risk flood zone?
What type of insurance is specifically required when a property is in a high-risk flood zone?
What is the maximum coverage for building coverage under the FEMA program for a residential structure?
What is the maximum coverage for building coverage under the FEMA program for a residential structure?
Who is responsible for obtaining the Flood Certification during processing?
Who is responsible for obtaining the Flood Certification during processing?
What information is NOT typically included in a Preliminary Title Report?
What information is NOT typically included in a Preliminary Title Report?
What is the role of the National Flood Insurance Program (NFIP)?
What is the role of the National Flood Insurance Program (NFIP)?
Why is the Preliminary Title Report crucial for lenders?
Why is the Preliminary Title Report crucial for lenders?
Which type of insurance limits are determined by private companies?
Which type of insurance limits are determined by private companies?
What responsibility does a borrower have regarding flood insurance at closing?
What responsibility does a borrower have regarding flood insurance at closing?
Flashcards
Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI)
A type of insurance that protects lenders against losses if a borrower defaults on their mortgage loan.
80% Loan-to-Value (LTV) Ratio
80% Loan-to-Value (LTV) Ratio
The minimum amount of equity a borrower needs to have in a home to avoid paying PMI. It's typically calculated as 20% of the home's value.
PMI Commitment
PMI Commitment
The process of obtaining a commitment from a PMI company to insure a mortgage loan. This commitment guarantees that the PMI company will cover potential losses if the borrower defaults.
Lender Paid Mortgage Insurance (LPMI)
Lender Paid Mortgage Insurance (LPMI)
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Conventional Loan
Conventional Loan
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Homeowners Insurance
Homeowners Insurance
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Mortgage Underwriting
Mortgage Underwriting
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Government Mortgage Insurance or Guarantee
Government Mortgage Insurance or Guarantee
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Flood Insurance
Flood Insurance
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Preliminary Title Report
Preliminary Title Report
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Lender's Title Insurance
Lender's Title Insurance
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National Flood Insurance Program (NFIP)
National Flood Insurance Program (NFIP)
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High-Risk Flood Zone
High-Risk Flood Zone
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Flood Certification
Flood Certification
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Condominium Homeowners Association Fees
Condominium Homeowners Association Fees
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Escrow
Escrow
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Liability Limit
Liability Limit
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Study Notes
Closing Preparations
- PMI (Private Mortgage Insurance): Required for conventional loans with less than 20% down payment or equity. Covers lender losses if borrower defaults. Reduces lender risk, allowing higher Loan-to-Value (LTV) ratios. PMI is temporary and terminates during loan life unlike FHA loans. Fannie Mae and Freddie Mac require PMI on loans under 80% LTV. Coverage is limited to the portion above 80% LTV. Cost depends on credit score, loan type, term, and coverage amount. Payment can be monthly or upfront at closing. Lender Paid Mortgage Insurance allows higher interest rates. Lender underwriting authority for PMI may be delegated or submitted to the PMI company.
- Homeowners Insurance: Required for all loans . Covers damage to house, other structures, contents, and liabilities. Borrower provides evidence of paid policy at closing. Varying requirements according to the loan program. Condo fees often include structural insurance, additional interior/contents insurance might be needed. Payment can be by the homeowner or through escrow. Most loan types require escrow payment. Liability limits often match estimated replacement cost. Risk considerations like high winds can require add-ons to coverage.
- Flood Insurance: Required when property is in a high-risk flood zone (1% or more annual flood risk), determined by FEMA (Federal Emergency Management Agency) surveys. High-risk zones are typically designated "A" or "V" on flood maps. Flood certifications obtained during processing. Borrowers pay private companies for certifications; the National Flood Insurance Program (NFIP) is offered by the federal government. Private flood insurance is also available, premiums based on flood zone, property age, elevation, and number of floors. Maximum coverage for residential structures (1-4 families) is $250,000 for building and $100,000 for contents.
- Title Insurance: Ensures ownership rights to the secured property. Required by most lenders. Requirements vary regionally but are standardized due to secondary market factors. Title insurance companies notified of lender requirements as part of closing instructions. Preliminary title reports are generated using public record searches, and provide information about property owners, easements, liens, and encumbrances; the report may identify issues that must be cleared before sale. Crucial for lender approval. Preliminary reports usually are provided for free by title insurance company.
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Description
This quiz covers the essentials of Private Mortgage Insurance (PMI) and Homeowners Insurance as they pertain to closing preparations for loans. Understand the requirements, costs, and coverage associated with these insurances to ensure a smooth closing process. Familiarize yourself with the guidelines set by Fannie Mae and Freddie Mac.
