what is pmi in real estate

Private Mortgage Insurance (PMI) is a type of insurance that may be required for conventional mortgage loan borrowers when they buy a home and make a down payment of less than 20% of the home’s purchase price. PMI protects the lender in the event that the borrower defaults on the loan, and the home goes into foreclosure. It allows individuals to become homeowners without a 20% down payment, but it does not protect the borrower from foreclosure. PMI is usually included in the monthly mortgage payment and can be paid as a one-time, up-front premium at closing. Once a borrower pays down enough of the mortgages principal, PMI can be removed. The cost of PMI can be a significant expense, but it can help individuals qualify for a loan that they might not otherwise be able to obtain. There are two types of PMI: borrower-paid PMI (BPMI) and lender-paid PMI. BPMI adds an insurance premium to the regular monthly mortgage payment, while lender-paid PMI is paid by the lender and is often reflected in a higher interest rate on the loan. PMI can be avoided by making a 20% down payment or by piggybacking a smaller loan to cover the down payment on top of the primary mortgage.