If a borrower has a 10% down payment and applies for a conventional loan, what is the lender most likely to require?

When a borrower makes a down payment of less than 20% on a conventional loan, the lender typically requires private mortgage insurance (PMI). This insurance protects the lender in the event that the borrower defaults on the loan. The rationale behind this requirement is that a lower down payment increases the lender's risk; by having PMI, the lender mitigates some of that risk.

PMI is not required for those who make a down payment of 20% or more, as it is generally considered that such borrowers have enough equity in the home to pose a lower risk to the lender. Therefore, in the case of a 10% down payment, PMI becomes a necessary safeguard for the lender, making this the correct answer.

In contrast, while homeowners insurance, title insurance, and flood insurance are important for protecting various aspects of the home and the owner's interests, they do not specifically address the risk associated with low down payments in the context of a conventional loan. Homeowners insurance covers damages to the home, title insurance protects against disputes over property ownership, and flood insurance is required only in designated flood zones. None of these insurances serve the same purpose as PMI for lenders when evaluating the additional risk of a borrower with a lower down payment.