Legal Definitions - PMI

PMI stands for private mortgage insurance. It is a type of insurance that protects the lender if the borrower fails to repay the loan. PMI is usually required by the lender when the borrower has a conventional loan with a down payment of less than 20% of the purchase price of the house.

Let's say you want to buy a house for $200,000. If you have less than $40,000 (20%) for a down payment, the lender will require you to purchase PMI. With PMI, you may only need to make a down payment of 10%, 5%, or even less.

This means that if you default on the loan, the lender will be protected by the PMI policy and will be able to recover some of their losses. However, PMI does not protect the borrower in any way.

Overall, PMI is a way for borrowers to get a mortgage with a lower down payment, but it comes with an additional cost. It is important to understand the terms and conditions of the PMI policy before agreeing to it.