For loans sold to Fannie Mae or Freddie Mac, mortgage insurance is required when the loan-to-value ratio exceeds

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Multiple Choice

For loans sold to Fannie Mae or Freddie Mac, mortgage insurance is required when the loan-to-value ratio exceeds

When a loan is a conventional one that will be sold to Fannie Mae or Freddie Mac, mortgage insurance is used to protect the lender when the borrower has less equity. The key rule here is that private mortgage insurance is required whenever the loan-to-value ratio is greater than 80%. LTV is calculated by dividing the loan amount by the appraised value (or purchase price, whichever is lower). If you make a 20% down payment, the LTV is 80%, and typical PMI is not required. If the down payment is smaller, the loan amount becomes a larger percentage of the value, pushing the LTV above 80% and triggering PMI to help cover the lender in case of default. PMI can be paid monthly by the borrower or sometimes financed into the loan, and it can be canceled once the LTV reaches about 78%–80% (assuming other requirements are met). This setup allows borrowers to access lower down payments while giving lenders added protection.

When a loan is a conventional one that will be sold to Fannie Mae or Freddie Mac, mortgage insurance is used to protect the lender when the borrower has less equity. The key rule here is that private mortgage insurance is required whenever the loan-to-value ratio is greater than 80%.

LTV is calculated by dividing the loan amount by the appraised value (or purchase price, whichever is lower). If you make a 20% down payment, the LTV is 80%, and typical PMI is not required. If the down payment is smaller, the loan amount becomes a larger percentage of the value, pushing the LTV above 80% and triggering PMI to help cover the lender in case of default. PMI can be paid monthly by the borrower or sometimes financed into the loan, and it can be canceled once the LTV reaches about 78%–80% (assuming other requirements are met). This setup allows borrowers to access lower down payments while giving lenders added protection.

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