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Understanding Mortgage Insurance and Loan Programs Quiz

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Understanding Mortgage Insurance and Loan Programs Quiz

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Questions and Answers

What is the main purpose of Private Mortgage Insurance (PMI)?

To protect the lender against loss from a default (correct)

To protect the borrower against loss from a default

To decrease the borrower's down payment

To increase the borrower's monthly payments

What is the impact on the borrower if PMI is required?

Decreased down payment amount

Increased property tax rates

Higher monthly mortgage payments (correct)

Lower interest rate on the loan

How does a lender-paid MI program differ from traditional PMI?

The borrower pays the MI premium directly to the lender

The MI premium is waived for borrowers with a credit score above 700

The loan amount is reduced if MI is lender-paid

The lender covers the MI costs, possibly resulting in a higher interest rate (correct)

When does PMI typically end for borrowers?

Upon reaching 80% loan-to-value ratio through payments or appreciation Signup and view all the answers

Why do lenders often require PMI for borrowers with less than a 20% down payment?

To safeguard against potential losses due to default Signup and view all the answers

What role does PMI play in facilitating home ownership for borrowers?

Provides a safety net for lenders, enabling them to offer loans with lower down payments Signup and view all the answers

What determines the maximum loan amount for an FHA-insured loan?

The Federal Housing Finance Agency (FHFA) on an annual basis Signup and view all the answers

What type of premium is required for FHA-insured loans?

Both an upfront and an annual premium Signup and view all the answers

What is the primary funding source for the FHA's single-family mortgage insurance program?

Insurance premiums and proceeds from foreclosed homes Signup and view all the answers

Which of the following is a loss mitigation option for FHA loans?

Forbearance agreements Signup and view all the answers

How does a higher down payment affect the private mortgage insurance (PMI) rate?

Decreases the PMI rate Signup and view all the answers

Which statement best describes a conforming loan limit?

It refers to a loan that meets specific criteria set by Fannie Mae and Freddie Mac Signup and view all the answers

What is the purpose of a VA-Guaranteed Loan?

To help Veterans purchase homes with no down payment Signup and view all the answers

What is the significance of the Loan-to-Value (LTV) ratio?

It indicates the borrower's risk level and affects PMI requirements Signup and view all the answers

What is a jumbo loan?

A loan that exceeds the conforming loan limits Signup and view all the answers