Which type of loan typically requires the borrower to pay private mortgage insurance (PMI)?

Private mortgage insurance (PMI) is commonly required for conventional loans when the borrower makes a down payment of less than 20% of the home's purchase price. PMI protects the lender in case of default, as it mitigates some of the risk associated with lending a higher percentage of the property's value.

When a borrower opts for a conventional loan and pays less than the 20% down payment threshold, they pose a higher risk to the lender. As a result, PMI becomes a requirement to ensure that the lender is partially safeguarded against potential losses.

In contrast, FHA loans mandate mortgage insurance premiums regardless of the down payment but are structured differently than PMI. VA loans do not require PMI, even when no down payment is made, as these loans are backed by the Department of Veterans Affairs and have different risk considerations. Since the question specifically addresses the context around PMI, the first choice accurately reflects the specific situation in which PMI is applicable for conventional loans with minimal down payments.