When is Private Mortgage Insurance (PMI) typically required?

Private Mortgage Insurance (PMI) is typically required when a borrower makes a down payment that is less than 20% of the home's purchase price. This is because lenders view loans with lower equity as higher risk. PMI protects the lender in the event that the borrower defaults on the loan. By requiring PMI, lenders can offer loans to borrowers who may not have the means to make a substantial down payment while still mitigating their risk.

Most conventional loans have this requirement when the loan-to-value (LTV) ratio exceeds 80%, which corresponds to the borrower having less than 20% equity in the property. Therefore, when the equity is less than 20%, PMI becomes a standard practice, making this the correct answer.

The other options either refer to scenarios where PMI would not be necessary, such as having equity of 30% or more, or incorrectly suggest that PMI is needed for all loans or just for government-backed loans, which is not accurate. Certain government-backed loans may not require PMI at all or may have different insurance requirements.