Private Mortgage Insurance

Statistics have shown lenders that buyers who put down less than 20% down-payment are more likely to default on their mortgage loans. 

When buyers put down less than 20% down-payment, lenders may require buyers to pay for Private Mortgage Insurance (PMI), to protect the lender in case of a buyer’s default.  The cost of PMI is either added to the buyer’s monthly mortgage loan payment or may be charged up front at closing.

PMI can work in a buyer’s favor, allowing the buyer to purchase a home with as little as 3-5% down-payment.  The lender, who wanted to finance only 80% of the home’s value (but agreed to finance 95-97%), secures a PMI policy for the buyer (at the buyer’s expense) and closes on the loan.  If the buyer defaults, the lender receives (from the insurance) the 15% that the buyer did not pay at closing.