When are borrowers typically required to purchase mortgage insurance?

Borrowers are typically required to purchase mortgage insurance when they do not make a down payment of at least 20%. This requirement arises because lower down payments can increase the lender's risk in the event of default. Mortgage insurance serves as a safeguard for lenders, which helps them recover some of their losses if the borrower stops making mortgage payments. Therefore, when a borrower puts down less than 20%, mortgage insurance essentially protects the lender against potential financial loss due to the borrower's default.

In contrast to this, while lower down payments and other factors like credit scores can influence loan terms and conditions, the specific guiding principle regarding mortgage insurance relates directly to the size of the down payment in relation to the property's value.