Private Mortgage Insurance (PMI) is insurance that protects the lender against non-payment should the home buyer default on the loan. It is important to understand that the only real reason for mortgage insurance is to protect the lender, not the buyer. The home buyer pays the premiums to make sure the lender is protected. The only benefit to the home buyer is the ability to have a lower down payment. In the tight credit market that exists it is critical that buyers make a down payment that is at minimum 20% of the purchase price of the home. It is an advantage for buyers to have sufficient cash on hand to preclude the necessity for Private Mortgage Insurance.
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