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  • Writer's pictureAileen Yambo

Copy of What the Hell is PMI & Why is it Needed.

Updated: Mar 30, 2023

PMI (private mortgage insurance) is a type of insurance that protects lenders in case a borrower defaults on their mortgage payments. It is typically required for borrowers who make a down payment of less than 20% of the home's purchase price.

The reason PMI is needed is that when a borrower makes a small down payment, the lender is taking on a higher risk of loss in case the borrower defaults. PMI helps to mitigate this risk by providing an additional layer of protection for the lender.

If the borrower defaults on the mortgage and the property is foreclosed upon, the PMI company will pay the lender a portion of the outstanding loan balance. This helps to offset the lender's losses and makes it less risky for lenders to offer mortgages to borrowers with less money to put down.

While PMI is an additional cost for borrowers, it can also make it easier for them to qualify for a mortgage and buy a home.

*It is important to notes:

PMI is not a permanent cost when you purchase a home with a conventional loan or an FHA loan with t least 10% down. PMI will go away once you reach 20% equity.

In some cases, borrowers may also be able to avoid PMI altogether by taking out a piggyback loan, where they borrow enough to make a 20% down payment and avoid the need for PMI.

For more information contact me! @ 646-261-4698


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