PMI allows buyers to purchase with as little as 5% down because the PMI company is accepting some of the risk.

PMI allows buyers to purchase with as little as 5% down because the PMI company is accepting some of the risk.

• A. True
• B. False
• C. Only for jumbo loans
• D. It does not affect down payment

Answer: (A)

Private Mortgage Insurance makes a low down payment possible by shifting part of the risk from the lender to the insurer. When you put only 5% down, the loan-to-value is higher and more risky for the lender. The PMI insurer agrees to cover part of the potential loss if you default, in exchange for a premium you pay. That shared risk is what allows lenders to approve loans with just 5% down. PMI is a cost to the borrower and protects the lender, not you, and it can be canceled once you have enough equity (typically around 20% or at certain LTV thresholds).

Private Mortgage Insurance makes a low down payment possible by shifting part of the risk from the lender to the insurer. When you put only 5% down, the loan-to-value is higher and more risky for the lender. The PMI insurer agrees to cover part of the potential loss if you default, in exchange for a premium you pay. That shared risk is what allows lenders to approve loans with just 5% down. PMI is a cost to the borrower and protects the lender, not you, and it can be canceled once you have enough equity (typically around 20% or at certain LTV thresholds).