Why do lenders require PMI for certain loans?

Lenders require Private Mortgage Insurance (PMI) primarily as a safeguard when homeowners make a low down payment on their loans. When a borrower puts down less than 20% of the home's purchase price, the risk for the lender increases in the event of default because there is less equity in the property upfront. PMI provides the lender with protection against financial loss should the borrower fail to repay the mortgage. Essentially, if the homeowner defaults, the insurer compensates the lender for part of the lost amount. This makes it easier for lenders to offer loans to borrowers who may not have substantial savings for a down payment, thus expanding access to homeownership while managing risk effectively.