What is typically required to avoid private mortgage insurance (PMI)?

To avoid private mortgage insurance (PMI), a common requirement is making a down payment of at least 20% of the home's purchase price. PMI is typically necessary for conventional loans when the borrower is unable to provide a substantial down payment. By providing a down payment of 20% or more, the borrower is considered to have a lower risk of default, thereby eliminating the lender's need for insurance to protect against potential losses.

In real estate financing, the rationale behind this requirement stems from the lender's interest in minimizing risk. A larger down payment indicates a stronger financial commitment from the borrower, who may be less likely to default on the loan, reducing the lender's exposure should the borrower run into financial difficulties. This practice also promotes homeownership sustainability by encouraging borrowers to invest a significant amount of their own resources into the property, ensuring they have a vested interest in its equity.

A loan amount of less than $150,000 and a down payment of at least 10% may also relate to PMI policies, but they do not universally eliminate the requirement for PMI. Options regarding the type of loan, such as a fixed-rate mortgage, do not influence the need for PMI directly; it is primarily tied to the down payment amount. Therefore,