What is PMI on a mortgage?

Answer 1

PMI is Private Mortgage Insurance. It is insurance for the lender in the event a borrower defaults on their mortgage payments. Any loan amount that is higher than 80% LTV (Loan-To-Value) requires PMI, as this is considered a "high-risk loan" for the lender.

Examples: If a home appraises for $100,000, then PMI is required on any loan amount higher than $80,000. If a home appraises for $200,000, then PMI is required on any loan amount higher than $160,000.

Exceptions to PMI: If you obtain a USDA loan or VA loan, then there will be no PMI required. Instead, there is a higher than normal "Funding Fee" included in the closing costs of the loan, but this "Funding Fee" can be financed into the loan (so you do not need to pay the "Funding Fee" up-front).

Answer 2

Private Mortgage Insurance (PMI) is money paid by the borrower that helps protect the lender’s investment in that borrower if/when they make a down payment of less than 20% on a home. Because a borrower that puts down less than 20% for a down payment is a “higher risk” borrower, lenders have more reason to protect themselves from these borrowers defaulting on their loan; the down payment usually will require PMI as a condition to borrow that money. Costs on PMI can vary as the size of the down payment varies, the amount of coverage a lender requires and what type of mortgage the borrower is getting. A general rule for PMI costs is roughly ½ of 1 percent of the size of the loan. This is something a borrower can pay as an upfront cost or they can roll this payment in to their monthly payments for their mortgage; there is an option for certain people to have this amount financed with the result being a higher interest rate on the mortgage.