Final answer:
The factor that determines whether a client will have to pay private mortgage insurance versus mortgage insurance premium is the type of loan (C) they have taken out. PMI applies to conventional loans with less than 20% down payment, while MIP is for FHA loans. Option C is correct.
Step-by-step explanation:
When considering which factor determines whether the client will have to pay private mortgage insurance versus mortgage insurance premium, the correct answer is C- Type of loan. Private Mortgage Insurance (PMI) is typically required when a borrower makes a down payment of less than 20% of the home's purchase price and has a conventional loan. On the other hand, Mortgage Insurance Premium (MIP) is associated with FHA loans, which is a type of government-backed loan. The need for PMI or MIP does not directly depend on the size of the loan, credit score, or loan-to-value ratio; instead, it is primarily based on the type of loan the borrower has secured. Lenders require these types of mortgage insurance to protect themselves in case the borrower defaults on the loan.
Private mortgage insurance is generally required when the loan-to-value ratio is higher than 80%. On the other hand, mortgage insurance premium is associated with loans insured by the Federal Housing Administration (FHA) and is determined by the loan-to-value ratio as well as other factors.