For conventional conforming loans over 80% LTV, what is required?

For conventional conforming loans with a loan-to-value (LTV) ratio greater than 80%, private mortgage insurance (PMI) is required in addition to escrow accounts. This requirement arises because a higher LTV indicates a greater risk for the lender; the borrower has invested less equity in the property. PMI serves to protect the lender in case of default by covering potential losses.

Escrow accounts are typically used to manage property taxes and homeowners insurance, providing a way for lenders to ensure these important expenses are paid on time. Therefore, while an escrow account is also required, having both PMI and escrow accounts is part of the risk management strategy lenders employ when making loans with higher LTV ratios. This combination helps safeguard both the lender and financial stability when the borrower's equity in the property is limited.