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Will Lillian be required to pay private mortgage insurance?

Rationale

No, her down payment is large enough to avoid PMI.

Lillian will not be required to pay private mortgage insurance (PMI) because her down payment exceeds the threshold typically needed to eliminate this additional cost. Generally, a down payment of 20% or more can exempt borrowers from PMI, thereby reducing their overall monthly mortgage payments.

A (No, her down payment is large enough to avoid PMI.) CORRECT

This choice accurately reflects the standard requirement for avoiding PMI, which is often a down payment of at least 20% of the home's purchase price. By making a sufficiently large down payment, Lillian qualifies for a mortgage without the added expense of PMI, resulting in significant savings.

B (Yes, PMI is required until she reaches 50% equity.) YOUR ANSWER

This option misinterprets PMI requirements. Typically, PMI is not mandated until the borrower has less than 20% equity in the home, not until they reach 50% equity. Therefore, this statement is incorrect regarding standard mortgage insurance practices.

C (Yes, her down payment does not meet the requirements to eliminate PMI.) YOUR ANSWER

This choice is incorrect because it implies that Lillian’s down payment is insufficient to avoid PMI. If her down payment is large enough, as stated in the correct answer, she would not be subject to PMI at all, making this option false.

D (No, but it depends solely on her credit score.) YOUR ANSWER

While credit score can influence mortgage terms and may affect PMI requirements in some cases, it is primarily the size of the down payment that determines whether PMI is necessary. Thus, this choice inaccurately suggests that credit score alone dictates the need for PMI, which is misleading.

Conclusion

Lillian's requirement for PMI hinges on her down payment amount rather than her credit score or equity percentages. With a sufficiently large down payment, she can avoid PMI altogether, thereby enhancing her overall financial position when acquiring the mortgage. Understanding these requirements is critical for homebuyers to make informed decisions about their mortgage options and associated costs.

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