If your down payment for a home you purchase is 20% or less of the total value of the property your lender will most likely require you to purchase private mortgage insurance or PMI. Private Mortgage Insurance protects the lender on a conventional mortgage in the event the borrower defaults and the lender forecloses on the property.

 

The premium for PMI is paid by the borrower and may be canceled once certain minimum required conditions have been met. Some types of mortgage insurance may not be canceled if the mortgage is backed by the Federal Housing Administration (FHA) or the Department of Veterans Administration (VA).

 

The PMI can cost between 0.5 - 6% of the principal amount of your loan depending on the amount of down payment, the type of loan (fixed or adjustable interest rate), and term of the loan, in addition to your (borrower) credit score.

 

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