Massachusetts Real Estate License Practice Test

What does the abbreviation PMI stand for in real estate financing?

1. Principal Mortgage Insurance

2. Private Mortgage Insurance

3. Property Management Insurance

4. Purchase Mortgage Insurance

The correct answer is: Private Mortgage Insurance

The abbreviation PMI stands for Private Mortgage Insurance. This type of insurance is typically required by lenders when a borrower is unable to provide a down payment of at least 20% of the property's purchase price. The primary purpose of PMI is to protect the lender in case the borrower defaults on the loan. By mitigating the lender's risk, PMI allows borrowers to secure financing with a lower down payment, making homeownership more accessible. Understanding the role of PMI is crucial for both homebuyers and real estate professionals, as it impacts mortgage terms and potential costs. While other terms like Principal Mortgage Insurance and Purchase Mortgage Insurance might seem plausible, they do not align with the commonly accepted definition within the real estate context. Property Management Insurance, on the other hand, refers to insurance that covers property managers and landlords for liability and property damage, which is entirely different from what PMI represents in financing. Thus, Private Mortgage Insurance is the correct answer as it accurately reflects the industry's standard terminology.