What is typically required of a borrower when they have less than 20% equity in a property?

When a borrower has less than 20% equity in a property, they are typically required to obtain private mortgage insurance (PMI). This insurance protects the lender in the event that the borrower defaults on the loan. Since a smaller down payment indicates a higher risk for the lender, PMI serves as a form of risk mitigation. It allows borrowers with lower equity to qualify for a mortgage, which they might not otherwise be able to secure due to perceived risk.

Private mortgage insurance is a necessary expense for borrowers with less than 20% equity because it provides a layer of security for lenders, enabling them to offer financing to a broader range of buyers. This requirement encourages responsible borrowing and lending practices, ensuring that both parties have a certain level of protection in the transaction.

While options like a home warranty, appraisal fee, and inspection report might be relevant in different contexts of real estate transactions, they do not directly relate to the minimum equity requirement and the associated implications like PMI does. Thus, PMI is the correct and relevant factor in this scenario.