What is Private Mortgage Insurance?
Private Mortgage Insurance (or PMI for short) is insurance you are required to pay if you have less than 20% down to buy a home. If you intend to buy a home with nothing down, or 5% down or even 10 - 15% down, the lender will require you to buy private mortgage insurance. It is usually added to your monthly payments, but it may be possible to buy it upfront and add it into the closing costs.
Private mortgage insurance is required to protect the lender in case you default on the loan and the lender has to go through foreclosure proceedings to sell the home. The private mortgage insurance company will then pay the lender and cover him in case of a loss (on your part.)
Usually, you would call the lender to have PMI canceled once you have paid down the mortgage to be 80% of the value of the home when it was purchased or the appraisal value, whichever is less. However, be warned that you cannot have any late payments on your mortgage when requesting a cancelation of private mortgage insurance.
