Private mortgage insurance

Private mortgage insurance (PMI) is a type of insurance required by conventional lenders when a homebuyer makes a down payment of less than 20%. It protects the lender, not the borrower, in case the homeowner defaults on the loan. PMI allows borrowers to qualify for a mortgage with a smaller upfront payment but adds a monthly cost until they build enough equity (usually reaching 20%) in the property. Once that threshold is met, PMI can typically be canceled, reducing overall monthly payments.