What is PMI (private mortgage insurance)?

PMI protects the lender when a buyer puts down less than 20%; it typically costs 0.5–1.5% of the loan per year and can be canceled once equity reaches 20%.

Private mortgage insurance (PMI) is a policy the borrower pays for that protects the lender — not the buyer — if the loan defaults. Conventional lenders generally require it when the down payment is under 20% of the home price. Costs commonly run roughly 0.5% to 1.5% of the loan amount per year, added to the monthly payment. Under the federal Homeowners Protection Act, a borrower can request cancellation once the loan balance reaches 80% of the home's original value, and the lender must automatically terminate PMI at 78%. The Consumer Financial Protection Bureau's Owning a Home resources explain how PMI interacts with loan estimates and closing documents.