Which type of financing typically requires a 20% down payment to avoid private mortgage insurance?

A conventional mortgage typically requires a 20% down payment to avoid private mortgage insurance (PMI). PMI is insurance that protects the lender in case the borrower defaults on the loan, and it is generally required when the down payment is less than 20%. By putting down 20% or more, borrowers can avoid this additional cost, making conventional mortgages more appealing to buyers who can afford the larger upfront payment.

Other financing options, such as FHA, USDA, and VA loans, have different down payment requirements that do not necessitate a 20% down payment to avoid PMI. FHA loans often require a lower down payment of 3.5%, but they do require mortgage insurance premiums regardless of the down payment amount. USDA loans also can offer zero down payment for qualified buyers, therefore avoiding PMI in those circumstances, while VA loans often require no down payment and do not carry PMI provisions at all, as they are backed by the Department of Veterans Affairs. This differentiation highlights why a conventional mortgage specifically links a down payment of 20% to the avoidance of PMI.