What does PMI stand for?

PMI stands for Private Mortgage Insurance. This type of insurance is typically required by lenders when a borrower is unable to make a down payment of at least 20% of the home’s purchase price. PMI protects the lender in case the borrower defaults on the loan. Essentially, it serves as a security measure that allows lenders to mitigate their risk when offering loans to borrowers with smaller down payments.

Private Mortgage Insurance is not only important for lenders but also impacts borrowers by adding an additional monthly cost to their mortgage payment. Understanding what PMI is helps homeowners make informed decisions about their mortgage financing options and the implications of their down payment choices. Other terms like Prepaid Mortgage Insurance, Permanent Mortgage Insurance, and Postponed Mortgage Insurance do not accurately describe this specific type of insurance or how it functions within the context of mortgage lending.