Mortgage insurance is typically required when the LTV exceeds what percentage?

Mortgage insurance is usually required when the loan-to-value (LTV) ratio exceeds 80%. This requirement is in place to protect lenders against potential losses in the event of borrower default. When borrowers make a smaller down payment (which results in a higher LTV), they are seen as higher-risk borrowers, and thus mortgage insurance provides a safeguard for the lender.

In conventional loan scenarios, when the LTV is 80% or lower, it indicates that the borrower has a significant equity stake in the property, which lowers the risk for the lender. As a result, mortgage insurance is not mandatory in such cases. However, when the LTV exceeds 80%, the likelihood of loss for the lender increases, making mortgage insurance a critical requirement for loan approval. This insurance ensures that lenders can recover some of their losses if the borrower defaults, maintaining the stability of the mortgage market.