Mortgage insurance is like an insurance policy that protects the lender against some (or most) of the loss that results if the homeowner defaults on the home loan. When the homeowner defaults, the property is either sold through a short sale or is foreclosed. Either way there is usually a loss for the lender and that is when the PMI comes into play.
PMI is usually required when a borrower is putting less than 20% into their down payment and financing more than 80%.
Like other insurance (home or auto), there is a premium that must be paid for the insurance. Sometimes this insurance is paid upfront in closing costs (like a VA funding fee), sometimes it is financed into the loan (like what often happens with an FHA loan) and sometimes it is paid through an increased interest rate. Yes, sometimes it is confusing….
How do you know which one you need, how you pay for it and where you get it? Trust me – …