If a borrower makes a down payment of less than 20% of the amount of a conventional loan, the borrower must purchase:

When a borrower makes a down payment of less than 20% on a conventional loan, they are required to purchase Private Mortgage Insurance (PMI). This insurance protects the lender in case the borrower defaults on the loan. Since a lower down payment increases the risk for lenders, PMI mitigates that risk by providing them with coverage for a portion of the loan amount.

The necessity for PMI stems from the idea that with less equity in the property, the borrower is more likely to default, making the lender vulnerable. By having PMI, lenders can offer loans to borrowers who may not have the means to make a larger down payment while also ensuring that their investment is somewhat protected.

In contrast, owner's title insurance relates to protecting the buyer's ownership rights to the property against claims; it is not directly tied to the down payment size. Liability insurance covers potential claims against property liability but doesn't pertain to the mortgage financing aspect associated with down payments. Thus, PMI specifically addresses the concern related to down payments below the 20% threshold in conventional loans.