For conventional mortgage loans without PMI, what is typically the minimum down payment required?

For conventional mortgage loans that do not require private mortgage insurance (PMI), the minimum down payment is usually set at 20%. This requirement is in place because lenders want to mitigate their risk when financing a home purchase. A down payment of 20% indicates a significant financial investment by the buyer, which typically results in more favorable loan terms, including lower interest rates, since the borrower is perceived as having a lower risk of default.

When a buyer puts down less than 20%, lenders often require PMI to protect themselves from losses that could occur if the borrower defaults on the loan. PMI serves as a safeguard, ensuring that the lender is compensated for the higher risk associated with lower down payments. Therefore, the 20% requirement helps borrowers avoid additional costs associated with PMI while also demonstrating their capability and commitment to the investment in the property.

In summary, conventional loans without PMI typically necessitate a minimum down payment of 20% to reassure lenders of the borrower’s commitment and reduce the lender’s risk.