Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) is an insurance policy required on most conventional loans when the borrower puts less than 20% down. It protects the lender — not the borrower — in case of default.
PMI can be paid monthly, upfront at closing, or as a combination of both. The cost varies based on credit score, LTV, and loan amount. On conventional loans, PMI can be removed once the borrower reaches 20% equity.
PMI is not the same as FHA mortgage insurance (MIP), which works differently and is typically required for the life of the loan. VA loans do not require any mortgage insurance — they use a one-time funding fee instead.
Why This Matters: PMI adds to your monthly cost, but it also makes homeownership possible with a smaller down payment. Understanding when it applies, how much it costs, and when it can be removed helps you plan your long-term strategy.
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