Which type of mortgage typically requires private mortgage insurance (PMI)?

Private mortgage insurance (PMI) is generally required for conventional loans when a borrower has a loan-to-value (LTV) ratio greater than 80%. This requirement is in place because a higher LTV indicates that the borrower is financing a larger portion of the home's value with less equity, which increases the lender's risk in case of default. PMI protects the lender by providing a form of insurance that covers losses if the borrower fails to repay the mortgage.

In the case of FHA loans, while they do have mortgage insurance premiums (MIP), they are structured differently from PMI and are required regardless of the LTV ratio. Such loans ensure coverage for the lender due to the higher risk associated with lower down payments but are not categorized under PMI.

VA loans, on the other hand, do not require PMI at any LTV ratio because they are backed by the Department of Veterans Affairs, which reduces the risk to lenders and allows veterans to obtain favorable loan terms without that additional insurance.

Subprime loans can often come with higher rates and different requirements, but they do not universally require PMI based solely on credit score or LTV in the same manner as conventional loans.

Understanding these distinctions is crucial for appraising the requirements associated with different mortgage types, particularly the