Why has 20% down/80% LTV been the historical standard to avoid PMI?

Question

I know that lenders love it if you can put more than 20% down, but are willing to lend to those with <20% down if you buy PMI. But why is 20% down the standard cutoff point to avoid PMI? Why isn’t this ratio set higher at 25% down or 15% down? Why is 20% such a special number?

In: 49

Answer 1

Most mortgage loans in the US are underwritten to the standards of Fannie Mae or Freddie Mac, which are the ultimate buyer/securitizers of most residential mortgage loans. They are required by law to only make high LTV loans (above 80%) if the loans have PMI.