Understanding PMI Calculations for Homebuyers in Georgia

What is the monthly PMI payment for a buyer who purchases a home for $200,000 with a 90% LTV and a PMI rate of .64%?

• A. $75.00
• B. $84.00
• C. $96.00
• D. $120.00

Answer: (C)

To calculate the monthly PMI (Private Mortgage Insurance) payment, you first need to determine the amount of the loan (the mortgage). With a purchase price of $200,000 and a loan-to-value (LTV) ratio of 90%, the amount of the loan can be established as follows: 1. Calculate the loan amount by multiplying the home price by the LTV ratio. In this case, it would be $200,000 multiplied by 90% (or 0.90), which equals $180,000. 2. Next, you will calculate the annual PMI cost. The PMI rate provided is 0.64%, so multiply the loan amount by this rate: $180,000 times 0.0064 equals $1,152. This amount represents the annual PMI. 3. To find the monthly PMI payment, divide the annual PMI cost by 12 months. Therefore, $1,152 divided by 12 is $96 per month. This calculation confirms that the monthly PMI payment for the buyer under the specified conditions is indeed $96. So, the correct answer is supported by directly applying the formulas for LTV, annual PMI calculations, and subsequent monthly division.

When you’re stepping into home buying territory, it’s essential to grasp all the financial components that come along with the journey, especially when it comes to understanding your Private Mortgage Insurance, better known as PMI. For those setting sights on the Georgia Multiple Listing Service (MLS) Practice Exam, mastering this concept isn’t just useful; it’s crucial. Ready to dig in? Let’s break it down!

Picture this: You’re eyeing a cozy home priced at $200,000, but you can only put down 10% as a down payment. That means you’re working with a loan-to-value (LTV) ratio of 90%. Now, the calculations come into play and trust me, it isn’t as daunting as it sounds.

First off, let’s calculate your loan amount. You'll be looking at $200,000 multiplied by 0.90 (your LTV ratio). What do you get? That’s right! You’re taking out a loan for $180,000.

Now, here’s where PMI steps in. Given that the PMI rate is set at 0.64%, it’s time to work this number into your equation. Multiply your loan amount of $180,000 by the PMI rate—0.0064, and voilà! You land at an annual PMI cost of $1,152.

But wait, we’re not done yet! To find out what this translates to on a monthly basis, simply divide your annual PMI by 12 months. Doing the math gives you $96 a month. Yes, you heard that right! It’s as straightforward as that—that’s your monthly PMI payment!

Usually, topics like this can seem dry as a bone, but they are immensely important, especially for anyone aiming to nail their Georgia MLS exam. So, why does PMI even matter? Well, it’s all about protecting lenders when buyers can’t put down a hefty sum on their new homes. And while it may feel like an extra cost piling on, understanding it can give you that edge during negotiations.

And don't just stop at PMI! The world of mortgages is rich with other key concepts. Think about interest rates, escrow accounts, and closing costs—topics that every savvy buyer should be familiar with. And let’s not forget—what would a home-buying journey be without keeping an eye on the market trends?

Navigating through the Georgia Multiple Listing Service might feel overwhelming, but breaking down complex subjects like PMI into bite-sized chunks is the secret ingredient to mastering your studies. And who knows, maybe this little math exercise will pop up in your Georgia MLS exam, giving you that confident edge you need to succeed.

Remember, the more you learn about the financial obligations and intricacies involved in home buying, the more prepared you’ll be not just for the exam, but for making wise financial decisions down the road. So, the next time you crunch the numbers for a future home purchase, just think back to this conversation—math doesn’t have to be scary; it can actually be your friend on the path to homeownership!