This changes from country to country and lender to lender, and market conditions may play a part, but the acceptable risk level is a property with a Mortgage Loan to Property Value ratio (LTV ratio) of 70 – 80%, with up to 30% of the borrower’s income dedicated to the mortgage payment.
For LTVs over 80% Mortgage Insurance is generally required and paid for by the borrower, either up front, at the end, or mixed in with the payment amount. The lender is obligated to remove the insurance when the LTV ratio has reduced to below 80%, either through property value appreciation, or the mortgage value has been sufficiently reduced by mortgage payments, or a combination of the two. Mortgage Insurance is NOT the same as Home Owner Insurance.
The Mortgage Insurance payments made by the borrower helps to mitigate any potential lost interest revenue or having to sell the property at a loss, should the lender have to foreclose and dispose of the property.