Which factor directly contributes to avoiding private mortgage insurance?

Which factor directly contributes to avoiding private mortgage insurance?

• A. Lender's approval
• B. Credit score
• C. Down payment percentage
• D. Property type

Answer: (C)

A down payment percentage directly contributes to avoiding private mortgage insurance (PMI). PMI is typically required when the borrower has a down payment of less than 20% of the home's purchase price. When a borrower can provide a down payment of 20% or more, they demonstrate a lower risk to lenders, which often eliminates the need for PMI. This requirement serves as a safeguard for lenders, as PMI protects them in the case of borrower default. Therefore, a higher down payment is a way for borrowers to showcase their equity in the property upfront, reducing lender risk and allowing them to avoid additional insurance costs. While other factors, such as a lender's approval, credit score, and property type may influence mortgage terms or the overall borrowing process, they do not have the direct impact on PMI exemption that the down payment percentage has.

A down payment percentage directly contributes to avoiding private mortgage insurance (PMI). PMI is typically required when the borrower has a down payment of less than 20% of the home's purchase price. When a borrower can provide a down payment of 20% or more, they demonstrate a lower risk to lenders, which often eliminates the need for PMI.

This requirement serves as a safeguard for lenders, as PMI protects them in the case of borrower default. Therefore, a higher down payment is a way for borrowers to showcase their equity in the property upfront, reducing lender risk and allowing them to avoid additional insurance costs.

While other factors, such as a lender's approval, credit score, and property type may influence mortgage terms or the overall borrowing process, they do not have the direct impact on PMI exemption that the down payment percentage has.