Multiple Choice
Which of the following would be considered assets in financial accounting?
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1. Introduction to Accounting
Types of Accounting
Multiple Choice
Private mortgage insurance (PMI) is mandatory for which of the following types of home loans?
A
FHA loans regardless of down payment
B
Jumbo loans with a down payment over 20%
C
Conventional loans with a down payment less than 20%
D
VA loans for all borrowers
Verified step by step guidance1
Understand the concept of Private Mortgage Insurance (PMI): PMI is a type of insurance that protects the lender if the borrower defaults on the loan. It is typically required for conventional loans when the borrower makes a down payment of less than 20% of the home's purchase price.
Review the characteristics of FHA loans: FHA loans are government-backed loans that require mortgage insurance regardless of the down payment amount. This is not considered PMI but rather a separate type of insurance specific to FHA loans.
Analyze Jumbo loans: Jumbo loans are large loans that exceed the conforming loan limits set by Fannie Mae and Freddie Mac. PMI is not mandatory for Jumbo loans with a down payment over 20%, as the borrower has already met the equity threshold.
Examine VA loans: VA loans are guaranteed by the Department of Veterans Affairs and do not require PMI, regardless of the borrower's down payment amount. Instead, VA loans may involve a funding fee.
Conclude with Conventional loans: Conventional loans require PMI when the borrower makes a down payment of less than 20%. This is the correct answer to the problem, as PMI is specifically tied to conventional loans under these conditions.
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