In a conventional loan, private mortgage insurance and escrows are required when the loan-to-value ratio is greater than:

In a conventional loan, private mortgage insurance (PMI) is required when the loan-to-value (LTV) ratio is greater than 80%. This requirement is in place because a higher LTV indicates that the borrower is financing a larger portion of the home’s value, which represents a higher risk for the lender. The PMI serves as a form of insurance that protects the lender in case the borrower defaults on the loan.

Escrows, particularly for property taxes and homeowner's insurance, are also commonly required when the LTV exceeds 80%. This means that lenders often want to ensure that these essential expenses are being managed and paid, further mitigating risk. Therefore, when a borrower is financing more than 80% of the home's value, both PMI and escrows typically become necessary components of the mortgage agreement. This standard helps protect the lender's investment while ensuring that the borrower can meet ongoing financial responsibilities associated with homeownership.