Under what circumstances would a lender most likely require private mortgage insurance (PMI)?

Private mortgage insurance (PMI) is typically required by lenders when a borrower makes a down payment that is less than 20% of the home's purchase price. This requirement aims to protect the lender in case the borrower defaults on the loan. When the down payment is between 5% and 19%, the risk to the lender increases because the borrower has less equity in the home. PMI mitigates this risk, allowing borrowers with smaller down payments to obtain financing for a home purchase.

In contrast, when a borrower makes a down payment of 20% or more, lenders generally consider the equity to be sufficient to mitigate risk, making PMI unnecessary. A cash purchase does not involve a mortgage at all, so PMI would not apply. Lastly, while investment properties can have specific insurance requirements, the need for PMI specifically relates to the down payment amount, making it less relevant to the question.