What is the maximum amount of insurance an originator can require a borrower to obtain on his/her home?

What is the maximum amount of insurance an originator can require a borrower to obtain on his/her home?

• A. The amount of the loan
• B. 80 percent of appraised value
• C. 100 percent of loan amount
• D. The lesser of loan amount or appraised value

Answer: (A)

The key idea is that mortgage insurance coverage is capped at the loan amount. Lenders require mortgage insurance to protect against default, but the policy cannot insure more than what was loaned. As a result, the maximum coverage a borrower can be required to obtain corresponds to the outstanding loan amount (the balance). The other figures reflect loan-to-value considerations or different types of insurance, but they don’t set a higher limit on mortgage insurance than the loan itself.

The key idea is that mortgage insurance coverage is capped at the loan amount. Lenders require mortgage insurance to protect against default, but the policy cannot insure more than what was loaned. As a result, the maximum coverage a borrower can be required to obtain corresponds to the outstanding loan amount (the balance). The other figures reflect loan-to-value considerations or different types of insurance, but they don’t set a higher limit on mortgage insurance than the loan itself.