What does PMI stand for in real estate?

PMI stands for Private Mortgage Insurance, which is a crucial concept in real estate financing. This type of insurance is typically required by lenders when a borrower opts for a conventional loan and makes a down payment that is less than 20% of the property's purchase price. The primary purpose of PMI is to protect the lender against the risk of default by the borrower on the mortgage loan.

When a borrower pays PMI, it allows them to qualify for a mortgage that they may not have otherwise been able to secure due to a lower down payment. This facilitates home ownership for many individuals and families who might not have sufficient savings to meet the 20% down payment threshold typically preferred by lenders. Additionally, PMI can be canceled under certain conditions once the borrower achieves sufficient equity in the home, further benefiting homeowners in managing their ongoing costs.

Understanding PMI is essential for anyone involved in real estate, whether as a buyer, seller, or real estate professional, as it impacts financing options and overall affordability of homes.