CHCP Insurance & Liability Considerations 3

Question 1

Private Mortgage Insurance (PMI) is typically required when a conventional loan has a loan-to-value ratio exceeding what percentage?

Accepted Answer

80%

Answer

PMI is generally required on conventional loans when the down payment is less than 20%, meaning the LTV exceeds 80%.

Question 2

Under the Homeowners Protection Act, when must a lender automatically cancel PMI on a residential mortgage?

Accepted Answer

When the loan balance reaches 78% LTV based on original value

Answer

The Homeowners Protection Act requires automatic PMI cancellation when the loan balance reaches 78% of the original purchase price through scheduled payments.

Question 3

What is a 'mechanics lien' and how can it affect a real estate closing?

Accepted Answer

A lien filed by contractors or suppliers for unpaid labor or materials on the property

Answer

A mechanics lien can cloud the title and must be resolved before closing since it represents an unpaid obligation for work done on the property.

Question 4

Which of the following losses is typically EXCLUDED from a standard homeowner's insurance policy?

Accepted Answer

Flood damage

Answer

Flood damage is specifically excluded from standard homeowner's policies and requires a separate flood insurance policy, typically through the NFIP.

Question 5

What is the purpose of a 'gap endorsement' in title insurance?

Accepted Answer

To cover the period between the title search and the recording of the deed

Answer

A gap endorsement protects against title defects that arise between the date of the title search and the actual recording of the new deed and mortgage.

(CHCP) Certified Home Closing Professional Practice Test

(CHCP) Certified Home Closing Professional Practice Test

CHCP Insurance & Liability Considerations 3