What type of loan typically does not require mortgage insurance?

The correct choice pertains to conventional loans where a borrower makes a down payment of 20% or more. In such cases, private mortgage insurance (PMI) is typically not required. When a borrower puts down at least 20%, the lender views the loan as less risky, as the borrower has substantial equity in the home right from the start. This significant equity cushion reduces the likelihood of default, making PMI unnecessary.

On the other hand, Federal Housing Administration (FHA) loans and Department of Veterans Affairs (VA) loans have different requirements. FHA loans require mortgage insurance irrespective of the down payment amount, often making them less appealing for borrowers who can afford a larger down payment. Although VA loans do not require mortgage insurance, they do have a funding fee, which is a one-time cost included in the loan amount that helps offset the program’s costs.

Understanding these distinctions is crucial for potential borrowers when deciding on the type of loan that best fits their financial situation and goals.