How does LTV impact PMI requirements?

• A. Conventional loans with LTV above 80% typically require PMI; PMI may be removed when LTV drops to around 78% with conditions.
• B. PMI is required only above 90% LTV.
• C. PMI is always required.
• D. PMI is never required.

Answer: (D)

When you borrow against a home, the amount you owe compared to the home's value is the loan-to-value ratio (LTV). The higher that ratio, the more risk the lender is taking, so private mortgage insurance (PMI) is typically required whenever the LTV is greater than 80%.

As you pay down the loan and/or the home’s value rises, the LTV falls. When it reaches about 78% of the original appraised value (some programs require the borrower to request it and meet a good payment history), PMI can be canceled. Many lenders will also allow removal when the LTV reaches 80% with on-time payments and other criteria.

So, PMI is not something that never occurs; it’s a tool tied to how much equity you have. The more you owe relative to the home’s value, the more likely PMI is to be required, and the less you owe, the sooner PMI can be removed.