Buying a home usually has a monster obstacle — coming up with a sufficient down payment. You can put less than the traditional 20% down payment but the lender will likely require you to buy mortgage insurance.
The concept behind mortgage insurance is the same as with other insurance plans. You pay a monthly premium to the insurer who protects the mortgage lender in the event you default. There are two types of mortgage insurance: government and private.What is private mortgage insurance? (PMI)
PMI is insurance for the mortgage lender’s benefit, not yours. It’s a concession often required when your down payment on the purchase of a home is less than 20%. Because the lender is assuming additional risk by accepting a lower amount of upfront money towards the purchase, they will often call for the borrower to purchase private mortgage insurance.