Which statement about PMI on conventional loans is true?

Which statement about PMI on conventional loans is true?

• A. PMI protects the lender when LTVR exceeds 80%
• B. PMI insures the borrower
• C. PMI is not required on conventional loans
• D. PMI covers property taxes

Answer: (A)

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).