What percentage of a down payment is typically the threshold to eliminate PMI?

What percentage of a down payment is typically the threshold to eliminate PMI?

• A. 10%
• B. 15%
• C. 20%
• D. 25%

Answer: (C)

To eliminate Private Mortgage Insurance (PMI), a common threshold is a down payment of 20% of the home's purchase price. PMI is typically required by lenders when a borrower's down payment is less than 20% because it represents a higher risk for the lender. By putting down 20% or more, borrowers are viewed as having a sufficient stake in the property, which can influence the likelihood of default. As a result, achieving a 20% down payment significantly reduces the need for PMI, ultimately leading to lower monthly mortgage payments and overall borrowing costs. This standard reflects industry practices, helping borrowers understand the financial implications of their down payment decisions.

To eliminate Private Mortgage Insurance (PMI), a common threshold is a down payment of 20% of the home's purchase price. PMI is typically required by lenders when a borrower's down payment is less than 20% because it represents a higher risk for the lender. By putting down 20% or more, borrowers are viewed as having a sufficient stake in the property, which can influence the likelihood of default. As a result, achieving a 20% down payment significantly reduces the need for PMI, ultimately leading to lower monthly mortgage payments and overall borrowing costs. This standard reflects industry practices, helping borrowers understand the financial implications of their down payment decisions.