What must a borrower do to avoid PMI on conventional loans?

What must a borrower do to avoid PMI on conventional loans?

• A. Make a 10% down payment
• B. Obtain special insurance
• C. Put down at least 20%
• D. Get pre-approved for the loan

Answer: (C)

To avoid Private Mortgage Insurance (PMI) on conventional loans, a borrower must make a down payment of at least 20%. PMI is typically required by lenders when a borrower puts down less than 20% of the purchase price of a home, as it protects the lender in case of default. By making a 20% down payment, the borrower demonstrates a greater equity stake in the property, which mitigates the lender's risk and eliminates the need for PMI. A down payment of 10% may still require PMI, as it does not meet the minimum threshold of equity that lenders are comfortable with. Special insurance is not the same as avoiding PMI; it represents an additional cost rather than a way to bypass PMI. Getting pre-approved for a loan is a separate process related to verifying a borrower's financial situation and does not directly influence the requirement for PMI. A down payment of 20% or more is the most effective way to avoid this extra cost altogether.

To avoid Private Mortgage Insurance (PMI) on conventional loans, a borrower must make a down payment of at least 20%. PMI is typically required by lenders when a borrower puts down less than 20% of the purchase price of a home, as it protects the lender in case of default. By making a 20% down payment, the borrower demonstrates a greater equity stake in the property, which mitigates the lender's risk and eliminates the need for PMI.

A down payment of 10% may still require PMI, as it does not meet the minimum threshold of equity that lenders are comfortable with. Special insurance is not the same as avoiding PMI; it represents an additional cost rather than a way to bypass PMI. Getting pre-approved for a loan is a separate process related to verifying a borrower's financial situation and does not directly influence the requirement for PMI. A down payment of 20% or more is the most effective way to avoid this extra cost altogether.