Under what condition can a buyer stop paying for private mortgage insurance (PMI) after purchasing a property for $260,000 with 100% financing?

The correct condition under which a buyer can stop paying for private mortgage insurance (PMI) is when the buyer has paid down the loan balance to a level where PMI is no longer required, typically when the borrower achieves 20% equity in the home. In this scenario, since the buyer purchased a property with 100% financing, he initially has no equity.

If the property was financed for $260,000, the buyer would need to reduce the loan balance to $195,000 (which is 80% of the original value) in order to cancel PMI. This means that after making payments totaling $65,000 towards the principal, the remaining balance would be $195,000, thus allowing him to eliminate PMI. This condition aligns directly with the significant principle that PMI is typically required until the borrower's equity reaches 20%.

This reasoning highlights the direct relationship between the principal repayment and equity. Other conditions, such as simply waiting five years, relying solely on property value increases, or refinancing may not guarantee the immediate cancellation of PMI because they don't directly correspond to the equity status of the loan as defined by lender guidelines for PMI cancellation. Therefore, being able to stop paying for PMI is contingent upon reaching that specific financial threshold related to