Private mortgage insurance is typically required for loans exceeding what percentage of the property's value?

Private mortgage insurance (PMI) is commonly required for loans that exceed 80% of the property's appraised value or purchase price, depending on which one is lower. The rationale behind this requirement is that when a borrower makes a down payment of less than 20%, it signifies a higher risk for the lender. PMI serves as a safeguard for the lender in case the borrower defaults on the loan, as it covers a portion of the lender's losses.

When a lender provides financing that surpasses 80% of the property's value, they face increased exposure to potential losses. Therefore, by requiring PMI, lenders can mitigate this risk and still provide financing to buyers who may not have enough savings for a substantial down payment. This requirement supports both lenders and borrowers, facilitating access to homeownership while managing risk.

As such, the requirement for PMI at 80% ensures a balance between granting loans to potential homeowners who may not have sufficient upfront capital and protecting lenders from losses associated with higher loan-to-value ratios. Adjusting the percentage threshold that would require PMI below this level, such as at 60% or 70%, would not align with common practices in the mortgage lending industry.