57. For the borrower, the major advantage of private mortgage insurance (PMI) for a home mortgage loan is that
Answer: B
A smaller down payment is required.
Private mortgage insurance (PMI) allows borrowers to secure a home mortgage with a smaller down payment than would otherwise be necessary, making homeownership more accessible.
A) the premium is typically paid by the seller.
This option is incorrect because PMI premiums are generally the responsibility of the borrower, not the seller. While there may be instances where the seller agrees to cover closing costs, PMI itself is typically paid by the buyer as part of the mortgage agreement.
B) a smaller down payment is required.
This option is correct because PMI enables borrowers to purchase homes with a down payment of less than 20% of the purchase price. This is a significant advantage for those who may not have substantial savings but still want to enter the housing market.
C) the entire amount of the loan is insured.
This option is misleading as PMI does not insure the entire loan amount. Instead, it protects the lender against loss in case of default, typically covering only a portion of the loan.
D) the loan is paid in full if the borrower dies.
This option is incorrect because PMI does not provide a death benefit that pays off the mortgage. Such provisions would typically be part of life insurance policies, not mortgage insurance.
Conclusion
The correct answer, that a smaller down payment is required, highlights the primary benefit of PMI for borrowers, making it easier to obtain a mortgage. All other options fail to accurately represent the purpose and function of PMI, either misattributing costs or misrepresenting the coverage provided.