Massachusetts Real Estate License Practice Test

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Get ready for the Massachusetts Real Estate Exam. Study with comprehensive questions and detailed explanations. Enhance your knowledge and confidence to excel in your examination!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

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What is the primary purpose of Private Mortgage Insurance (PMI)?

To cover homeowners' property damages
To protect lenders against foreclosure loss
To insure personal property
To provide life coverage for borrowers

The correct answer is: To protect lenders against foreclosure loss

The primary purpose of Private Mortgage Insurance (PMI) is to protect lenders against foreclosure loss. When a borrower makes a down payment that is less than 20% of a home's purchase price, the lender often requires PMI to mitigate the risk associated with lending a larger portion of the property value. In the event that the borrower defaults on the mortgage and the home goes into foreclosure, PMI helps the lender recover some of the losses incurred if the property sells for less than the amount owed on the mortgage. This insurance does not cover damage to the homeowner's property, personal belongings, or provide life insurance coverage for borrowers. Instead, it serves as a financial safeguard for lenders, which in turn allows them to offer loans to borrowers who may not have sufficient equity upfront, thus facilitating homeownership for a broader range of individuals.