Ace the Arizona Real Estate Exam 2026 – Unlock Your Property Dreams!

To avoid private mortgage insurance (PMI) on a conventional loan, a borrower typically aims for a loan-to-value (LTV) ratio of 80% or lower. This means that the borrower is putting down at least 20% of the home's purchase price as a down payment. Lenders generally require PMI when the LTV exceeds 80% because a higher LTV indicates a greater risk to the lender. By maintaining an LTV of 80% or lower, the borrower signals that they have a significant investment in the property, which mitigates some of the lender's risk and often leads to more favorable loan terms, including the elimination of PMI costs. This requirement is a standard practice in conventional financing where PMI serves to protect lenders in case of borrower default.