Under what condition can a borrower avoid paying PMI?

A borrower can avoid paying Private Mortgage Insurance (PMI) if they put at least 20% down on their home purchase. PMI is typically required by lenders when the borrower's down payment is less than 20% of the home's purchase price, as it serves as protection for the lender against the risk of default. By making a down payment of 20% or more, borrowers demonstrate a lower risk profile, meaning they have more equity in the home from the outset. This significant equity reduces the lender's risk and generally allows the borrower to avoid the additional PMI expense.

The other options do not directly relate to the requirement of PMI. A co-signer can improve the chances of loan approval or terms but does not eliminate the need for PMI based on the percentage of the down payment. Choosing a shorter loan term might have advantages in interest rates or total interest paid, but it does not impact PMI requirements. Similarly, taking a higher interest rate might change the monthly payment structure but would not affect whether PMI is required based on the down payment size.