Private Mortgage Insurance (PMI)

Definition of "Private mortgage insurance (PMI)"

Paul Van Zandt real estate agent

Written by

Paul Van Zandtelite badge icon

Realty Professionals of Texas

The concept behind a Private Mortgage Insurance (PMI) is pretty simple: it exists to make sure the lender doesn’t lose its money.

What it does is “buy” the possible defaults of a borrower to a lender. Meaning: if the borrower doesn’t pay the premium, the Private Mortgage Insurance (PMI) enters in action and pays it on his/her behalf.

The PMI cost is usually included in the monthly mortgage payment in addition to the principal, homeowner’s insurance, property tax and interest, and just like them, it is a separate thing; it doesn’t build equity to your home.

Why do it?

Well, most of the time you don’t have an option; it is a requirement from the Lender that you get Private Mortgage Insurance (PMI) in order to be able to borrow the money. However, it truly can be good for both parties: the lender doesn’t lose money and the borrower can get a house even if he doesn’t have the whole 20% of the home’s value to use as down payment, since lenders sometimes waive the need of it because of the safety provided by the Private Mortgage Insurance (PMI).

 

Real estate Tips:

One of the greatest insurances in the world is knowledge! Devour our Real Estate Terms and use our Real Estate Agent Directory to contact a local real estate agent when you're ready to go into the market for/with your house!

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Mortgage Terms

Protection for a borrower against the danger that rates will rise between the time the borrower applies for a loan and the time the loan closes. Rate protection can take the form of a ...

A mortgage that does not meet the purchase requirements of the two federal agencies, Fannie Mae and Freddie Mac, because it is too large or for other reasons, such as poor credit or ...

The house in which the borrower will live most of the time, as distinct from a second home or an investor property that will be rented. ...

A measure of interest cost on a reverse mortgage. ...

A borrower who does not meet the underwriting requirements of mainstream lenders. Sub-prime borrowers pay more than prime borrowers and are sometimes taken advantage of. ...

A documentation option where the applicant's income is disclosed and verified but not used in qualifying the borrower. The conventional maximum ratios of expense to income are not ...

Using a brokers time and expertise to become informed and creditworthy, then jumping to the Internet to get the loan. ...

Programs offered by some lenders under which a borrower who is able to secure a grant or gift equal to 2% of the down payment will only have to provide a 3% down payment from their own ...

A mortgage on which half the monthly payment is paid every two weeks. This results in 26 payments per year, which is the equivalent of 13 monthly payments rather than 12. Because of the ...

Popular Mortgage Questions