California Real Estate Practice Exam

What is the loan to value ratio above which a borrower will typically have to purchase private mortgage insurance?

1. 70%

2. 80%

3. 90%

4. 100%

The correct answer is: 80%

The correct answer is B because 80% is considered the threshold for most lenders to require private mortgage insurance (PMI). PMI is typically required when the loan to value ratio exceeds 80%, meaning the borrower is borrowing more than 80% of the value of the property. This requirement is in place to protect the lender in case the borrower defaults on the loan. Options A, C, and D are incorrect because they either fall below or exceed the 80% threshold, making them less likely to trigger the requirement for PMI.