What Is Private Mortgage Insurance?

One term that you hear thrown about these days in relation to home purchases is PMI, but not many people know that much about it. PMI stands for Private Mortgage Insurance and it is becoming ever more popular as home prices rise and buyers are having a more difficult time coming up with a down payment that lenders and banks require to purchase a home. Typically if a buyer does not have the 20% down payment that is usually required by lenders in order to finance a home they will request that a buyer obtains PMI in order to secure the loan. With so many buyers now purchasing homes with 0% or very little in terms of a down payment private mortgage insurance has established itself in the mortgage industry and looks to be settling in for the long haul.

Looking at current trends in real estate it appears that it is becoming more and more difficult to come up with a 20% down payment. Home prices are rising but wages are really not matching that increase. On a $200,000 home it can be pretty difficult to come up with the necessary down payment. Obtaining private mortgage insurance can help to solve this problem by supplying the additional funds needs to satisfy the bank or lender. By using this method the full down payment would be made and the home could be purchased. Typically the monthly PMI payments are made along with the mortgage payment and the funds are placed into escrow until such a time as the premiums need to be paid. In usual circumstances the PMI can be cancelled once the home owner acquires approximately 20% equity in their home.


This is not a typical home financing situation and has only come to prominence over the past few years as the ability to pull together large amounts of money has become more and more difficult. If you are able to secure normal financing then that is definitely your best course of action. The fewer hands that are in your financial cookie jar the better. But if you are unable to purchase a home due to lack of a down payment then consider the options that PMI can supply. It might just land you a home.