Question 3

Lillian will not be required to pay private mortgage insurance because her down payment is large enough to avoid PMI.

Lillian's substantial down payment qualifies her to bypass private mortgage insurance (PMI), which is typically mandated when a borrower puts down less than 20% of the property's purchase price.

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

This option is correct because PMI is generally avoided when a borrower makes a significant down payment, typically exceeding 20% of the home's value. Since Lillian's down payment meets this threshold, she is not required to pay PMI.

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

This option is incorrect. PMI is not contingent upon reaching 50% equity; rather, it is primarily dependent on the size of the down payment. If the down payment is large enough (over 20%), PMI is not required from the outset.

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

This option is also incorrect. Lillian's situation indicates that her down payment does meet the necessary requirements to eliminate PMI, as she is able to avoid it altogether due to the size of her down payment.

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

This option is misleading. While credit score can influence mortgage terms, the requirement for PMI is primarily determined by the amount of the down payment. Therefore, it is not solely dependent on credit score; Lillian's down payment is the key factor in this case.

Conclusion

Lillian's large down payment allows her to avoid the need for private mortgage insurance, making Option A the definitive correct choice. All other options fail to accurately reflect the criteria for PMI, which is predominantly based on the size of the down payment rather than equity levels or credit scores.