What does "Private mortgage insurance (PMI)" mean?

Private mortgage insurance (PMI) is a policy that protects the lender if you default on a conventional loan. PMI is required when your down payment is less than 20% of the home's value.

PMI can be removed once your loan balance reaches 78% of your home's original appraised value, or when you reach 20% equity through payments. You can request cancellation of PMI when you have 20% equity based on the current market value, but the lender must approve your request.

PMI for a $400,000 house typically costs between $100 and $300 per month, depending on the loan amount, down payment, and credit score. For a 5% down payment, PMI could be approximately 0.3% to 1.5% of the original loan amount annually, translating to an upfront cost of about $1,200 to $6,000.

Private mortgage insurance (PMI) protects the lender if you default on a conventional loan and is required when your down payment is less than 20% of the home's value. To avoid PMI, make a down payment of 20% or more, or explore loan options that do not require PMI.