Could Obtaining Private Mortgage Insurance (PMI) Help Me Qualify for a Larger Loan?

Yes, it will help you obtain a larger loan, here’s why: Without PMI, on a conventional loan, you must make a 20% downpayment. So the loan amount is limited by how much you have for this expense.  With PMI, you only have to have a 5% downpayment, so the same amount of downpayment funds will buy you a more expensive home.  

Let's say that you are a family with $75,000 Annual Gross Income and monthly revolving debts of $800 for car payment and credit cards, and you have $10,000 for your down payment and closing costs on a 4.5%-interest mortgage. Without PMI the maximum price you can qualify for is $44,600, but with PMI covering the lender's risk, at 95% loan-to-value,  you now can buy a $100,000 house. PMI has afforded you 55% more house.

Of course the size of your downpayment is not the only factor in qualifying for a loan.  PMI will increase your monthly mortgage payment and therefore increase your debt ratio.  You can't exceed a 43% debt ratio on a conventional mortgage.