What type of loan typically requires PMI when the down payment is less than 20%?

Private Mortgage Insurance (PMI) is often a requirement for conventional loans when the borrower makes a down payment of less than 20%. This insurance protects the lender in the event of default, as a smaller down payment indicates a higher risk for the lender. PMI is specifically associated with conventional loans as a means to mitigate that risk.

While FHA loans also require mortgage insurance, they differ from PMI in that the insurance is structured differently and is typically required for the life of the loan regardless of the down payment size. VA loans, on the other hand, do not require any form of mortgage insurance, making them distinctive in that aspect. Lastly, subprime loans may come with higher risks and costs, but they do not have a standardized requirement for PMI linked to the down payment.

Thus, when considering which loan type mandates PMI for a down payment of less than 20%, conventional loans stand out as the answer.