Mortgage Insurance (PMI)

Purchased by the buyer to protect the mortgage lender in the event of default (typically for loans with less than 20% down).   PMI is required for borrowers of conventional loans with a down payment of less than 20%.  FHA loans and VA loans are essentially public mortgage insurance, as borrowers pay higher insurance premiums in exchange for a lower down payment.  These funds allow the FHA to insure lenders against losses if borrowers default on FHA-approved loans.  Available through a government agency like the Federal Housing Administration (FHA) or through private mortgage insurers (PMI).

Mortgage insurance costs are included as part of the monthly loan payment.  FHA-insured loans have two mortgage insurance components: an upfront premium and a monthly payment.  The upfront premium is paid at closing, whereas the monthly payment is paid until the borrowers reach a certain loan-to-value ratio on their mortgage loan, based on the final sale price of the home.