When Is Private Mortgage Insurance (PMI) Required?

When Is Private Mortgage Insurance (PMI) Required?
Private Mortgage Insurance (PMI) is insurance required by most lenders, which is purchased by the borrower to protect the lender in case the borrower defaults on the loan. PMI is required on purchase loans with down payments that are less than 20% of the home's sale amount. For example, if you make a down payment of 20% of the cost of your home, the lender has good reason to trust that you will make your mortgage payments faithfully to protect your large investment. But, if you make a smaller down payment, such as 5% or 10%, and borrow the rest, and you default on your loan, the lender risks losing money. So, lenders require you to purchase PMI, which will guarantee them payment on the balance of loans not covered by the sale of foreclosed properties.
Still have questions? Ask Us.