Paying PMI is never an "option", nor is homeowner's insurance when you have a mortgage. If you put down less than 20%, unless you can split the loan between a first and second mortgage, such as in an 80-10-10 deal, you would have to pay PMI in some form, either monthly or 1 time up-front on a conventional loan, or as previously mentioned MIP.
It's the golden rule they have the gold they make the rules. If you are putting less than
20% for a conventional loan PMI is required the only way to challenge it is if the appraised
value show you have more than 20% equity.
Your options are to A. make a down payment of at least 20% ($18,000 in this case), B. find a HomePath/Steps eligible foreclosure owned by Fannie Mae/Freddie Mac (you'll pay a higher interest rate however as a trade off).
You don't have to agree to pay the PMI - but you won't get the loan if you don't. Make sure you read and understand the Good Faith Estimate your lender is obligated to provide you. Often these are a little "overestimated" to protect the lender from being responsible if the totals end up being higher. This document outlines your financing in detail, and breaks everything down for you.
Hope that helps!