Question

Which of the following statements is correct?

a) PMI applies to conventional loans and MIP applies to FHA loan
b) MIP applies to conventional loans and PMI applies to FHA loans
c) PMI applies to conventional loans and MIP applies to VA and FHA loans
d) PMI applies to conventional loans, and FHA and VA are insured by the government

Answer 1

PMI applies to conventional loans and FHA and VA loans are insured by the government.

Step-by-step explanation:

The correct statement is: PMI applies to conventional loans, and FHA and VA loans are insured by the government.

Private Mortgage Insurance (PMI) is required for conventional loans when the borrower does not make a down payment of at least 20% of the home's purchase price. PMI protects the lender in case the borrower defaults on the loan.

Mortgage Insurance Premium (MIP) applies to FHA loans and protects the lender in the same way PMI does for conventional loans. MIP is required for all FHA loans, regardless of the down payment amount.

VA loans are insured by the U.S. Department of Veterans Affairs, not through MIP or PMI.