At what equity position will PMI automatically cancel for a conforming loan, assuming the borrower has made all payments in a timely manner?

The correct equity position for the automatic cancellation of Private Mortgage Insurance (PMI) on a conforming loan is when the borrower reaches an equity position of 22% of the home's original value. This threshold is based on the Loan-to-Value (LTV) ratio, which is a crucial factor in determining the need for PMI.

When a borrower has made timely payments and reaches 22% equity, it indicates that they have paid down enough of the principal balance through their payments, reducing the loan balance relative to the home's value. PMI is designed to protect the lender in case of borrower default, particularly for those with down payments less than 20%. Once the borrower attains a 22% equity stake, the risk to the lender diminishes significantly, allowing for the cancellation of PMI.

In contrast, the other provided options do not align with the established standards for PMI cancellation. The requirement for PMI relief reflects the need for sufficient equity to ensure that lenders have a reduced risk profile, and understanding this percentage is critical for borrowers to optimize their mortgage costs.