What can a borrower expect from their lender concerning insurance requirements?

A borrower can expect that the lender may require additional private mortgage insurance (PMI) in certain circumstances, particularly when the borrower has a down payment that is less than 20% of the home's purchase price. Lenders typically enforce this requirement to protect themselves against potential losses in case the borrower defaults on the loan. PMI serves as a safeguard, allowing the lender to recoup some of their risk if the home goes into foreclosure.

In scenarios where borrowers cannot provide a significant down payment, the requirement for PMI becomes a common condition of the loan approval process. This makes it an important aspect for borrowers to understand, as it can add to their overall monthly payment and impact their budget.

The other options do not align with standard lending practices. For instance, lenders do not usually cover all insurance costs; insurance is typically the responsibility of the borrower. Insurance is not optional for most loan types, especially for those backed by government entities or when a conventional loan involves a lower down payment. Lastly, lenders do exert influence over insurance policies to ensure adequate coverage is in place, especially for the property securing the loan.