If you are looking to buy a home but plan to make a down payment of less than 20%, most lenders will require private mortgage insurance. Mortgage insurance protects the lender against a loss that results from a default on a mortgage loan. If a borrower can’t repay an insured mortgage loan as agreed, the lender may foreclose on the property then file a claim with the mortgage insurer for any loss incurred.
Private Mortgage Insurance (or “PMI”) is available through a number of companies. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders, in turn, use these guidelines to determine buyer eligibility. Premiums for these policies are typically paid as part of your monthly mortgage payment.
Your lender or REALTOR® can provide more information on the benefits, costs and availability of private mortgage insurance in your area and situation.
While the primary purpose of private mortgage insurance is to protect the lender, home buyers also benefit. Being able to purchase a home with a smaller down payment can help you buy a home sooner, while keeping money in your pocket to use for other investments or expenses.
