Private mortgage insurance required? Here’s what to know

There are many expenses involved with buying a home, especially if you’re utilizing a home mortgage loan for the purchase. If you plan to take out a conventional mortgage loan, one possible cost you could encounter is private mortgage insurance (PMI).

Here’s a look at what private mortgage insurance is, who’s responsible for buying it, and the kind of coverage it offers.

What is Private Mortgage Insurance, and when is it required?

PMI is a type of insurance coverage that a mortgage lender may require in order to protect itself from any potential losses if a homeowner defaults on their home loan. It may be required if you have a conventional mortgage loan and put less than 20% down on a home or refinance your mortgage loan and leave less than 20% equity remaining in the property, according to the Consumer Financial Protection Bureau (CFPB).

A home loan with a smaller down payment represents a bigger risk for lenders, as there is less established home equity. With the security of PMI, though, a lender may find it easier to accept a higher-risk borrower. PMI does not protect the buyer in any way. Unlike a homeowners insurance policy, it offers no coverage on your property if there is damage or loss.

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