In what circumstances can a borrower avoid PMI?

A borrower can avoid Private Mortgage Insurance (PMI) when making a down payment of 20% or more on a conventional loan. PMI is typically required by lenders when the down payment on a conventional loan is less than 20%. This insurance protects the lender in case the borrower defaults on the loan. By putting down 20% or more, the borrower demonstrates a significant investment in the property, which reduces the lender’s risk.

While there are other scenarios where PMI might not be applicable, such as certain government loans where PMI is not required or possibly through refinancing, these do not directly pertain to conventional loans in the same way that a substantial down payment does. Additionally, while a high credit score may be beneficial in securing better loan terms or rates, it does not directly eliminate the need for PMI on its own. Thus, placing a large down payment is the most straightforward action a borrower can take within conventional loan parameters to avoid PMI.