What percentage of the purchase price is required as a down payment for conventional conforming loans to avoid paying private mortgage insurance?

What percentage of the purchase price is required as a down payment for conventional conforming loans to avoid paying private mortgage insurance?

• A. 10%
• B. 20%
• C. 25%
• D. 30%

Answer: (B)

To avoid paying private mortgage insurance (PMI) on a conventional conforming loan, a borrower is typically required to make a down payment of at least 20% of the purchase price. This requirement is rooted in the lender's assessment of risk; a smaller down payment indicates a higher risk of default. By having a down payment of 20% or more, the borrower builds equity in the home right away, which offers a safety net for the lender and reduces the likelihood of needing PMI. PMI is generally required when the down payment is less than 20%, as it protects the lender in the event that the borrower defaults on the loan. Thus, making a down payment of 20% not only eliminates PMI costs but also contributes to a more favorable loan-to-value ratio, which can lead to better loan terms and interest rates.

To avoid paying private mortgage insurance (PMI) on a conventional conforming loan, a borrower is typically required to make a down payment of at least 20% of the purchase price. This requirement is rooted in the lender's assessment of risk; a smaller down payment indicates a higher risk of default. By having a down payment of 20% or more, the borrower builds equity in the home right away, which offers a safety net for the lender and reduces the likelihood of needing PMI.

PMI is generally required when the down payment is less than 20%, as it protects the lender in the event that the borrower defaults on the loan. Thus, making a down payment of 20% not only eliminates PMI costs but also contributes to a more favorable loan-to-value ratio, which can lead to better loan terms and interest rates.