When is mortgage insurance typically required?

Mortgage insurance is typically required when the loan-to-value (LTV) ratio exceeds 80%. This situation arises when a borrower is unable to provide a down payment that is at least 20% of the property's purchase price. The purpose of mortgage insurance is to protect the lender in case the borrower defaults on the loan. By requiring mortgage insurance for higher LTV ratios, lenders manage their risk while still allowing borrowers to secure financing even if they cannot afford a large down payment.

Having an LTV ratio above 80% indicates that the borrower is financing a larger portion of the home’s value, which increases risk for the lender. Consequently, the lender requires mortgage insurance to mitigate that risk. This requirement does not directly depend on the borrower’s credit score, whether they are a first-time home buyer, or if they are purchasing a second property, making other options less relevant in this context.