What is the primary purpose of private mortgage insurance (PMI)?

The primary purpose of private mortgage insurance (PMI) is to protect the lender against borrower default. PMI is typically required for conventional loans when the down payment is less than 20% of the home's value. By providing this insurance, the lender reduces its risk in the event that the borrower is unable to make their mortgage payments and defaults on the loan. If a default occurs, PMI helps cover the losses incurred by the lender, making it easier for them to approve loans for borrowers who may not have a significant down payment.

The other options do not accurately represent the role of PMI. It is not intended to cover home repair costs, reduce closing costs, or increase loan limits. PMI specifically serves to mitigate the lender's risk associated with lower down payments, ensuring that lending can be more accessible while still providing a safety net for lenders.