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

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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?

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Anonymous 0 Comments

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.

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