Which type of mortgage is most likely to require private mortgage insurance (PMI)?

Private mortgage insurance (PMI) is typically required when a borrower is unable to make a substantial down payment, specifically when the down payment is less than 20% of the home's purchase price. FHA loans are designed to assist borrowers with limited savings, often allowing for down payments as low as 3.5%. Since these down payments are generally below the 20% threshold, PMI becomes a necessary addition to protect lenders in the event of borrower default.

In the context of conventional mortgages, when there is a down payment of 20% or more, PMI is usually not required because the lender considers the overall risk lower. Adjustable-rate and reverse mortgages also do not inherently require PMI, as their structures and purposes differ from those of traditional purchasing loans. Thus, the requirement of PMI is most associated with loans that involve lower down payments, such as an FHA loan with a low down payment, making it the correct choice in this context.