Question

When might a lender require you to obtain PMI?

A) When your credit score is high
B) When the down payment is less than 20%
C) When the loan term is shorter than 15 years
D) When the property is located in a rural area

Answer 1

A lender may require you to obtain PMI when the down payment is less than 20%. The correct option is (B).

Step-by-step explanation:

When the down payment is less than 20%, a lender may require you to obtain PMI (Private Mortgage Insurance). PMI is a type of insurance that protects the lender in case you default on your loan.

It is typically required when the loan-to-value ratio (the amount of the loan compared to the value of the property) is higher than 80%. PMI allows borrowers to make a lower down payment, but it increases the overall cost of the loan.