What is private mortgage insurance (PMI) typically required for?

Private mortgage insurance (PMI) is typically required for loans with a loan-to-value (LTV) ratio that exceeds 80%. When a borrower makes a down payment that is less than 20% of the property's purchase price, the lender considers this a higher risk. PMI protects the lender in the event that the borrower defaults on the loan, allowing borrowers to secure financing even with a lower down payment.

In most cases, lenders want to mitigate their risk, hence the requirement for PMI in scenarios where the borrower has less equity in the property—specifically when the LTV surpasses 80%. By purchasing PMI, borrowers can often qualify for a loan when they might not otherwise be able to due to a limited down payment.

This understanding clarifies the context for why other options do not apply as broadly. For instance, not all conventional loans require PMI; it specifically pertains to loans that exceed the 80% LTV threshold. Additionally, loans above $1 million do not universally require PMI since lender policies can vary significantly, and the requirement is more closely associated with down payment size than loan amount. Government-backed loans, like FHA or VA loans, may have different insurance or guarantee requirements that do not involve PMI, thus also making that