FAQ: What is Private Mortgage Insurance (PMI)?

Posted in Home Insurance

September 15th, 2009

Are you thinking about buying a new home? The answer, clearly, will depend on your credit and how much money you can put down for your down payment. Most of us don’t have major amounts of cash like that lying around, but the good news is that even if you only have a small amount to offer as a down payment, you can still get the home of your dreams (or at least, not one from your nightmares) by getting private mortgage insurance.

Private Mortgage Insurance Basics

Private mortgage insurance, typically referred to as PMI, is required by the lender when the borrower does not have a large amount of money for a down payment. When you have private mortgage insurance, the lender – usually a bank or credit union – now has insurance should you default on your home loan. Private mortgage insurance is all about ensuring the lender does not lose out when making a loan.

Benefits of PMI

Banks and other lending institutions typically require a down payment of at least 20% of the cost of the home. That can take a very, very long time to save up for. With private mortgage insurance, prospective home owners can purchase a new home with as little as 3% of the down payment. PMI allows banks to make loans that would otherwise be too risky.

To learn more about private mortgage insurance, be sure to speak to a qualified loan professional, or a professional in the real estate industry. He or she can help any additional questions you may have about home insurance policies and mortgages.