Private Mortgage Insurance (PMI)
Private mortgage insurance (PMI) is largely responsible for the proliferation of the low down payment and zero-down payment mortgage loan programs that can help make homeownership affordable for homebuyers who otherwise couldn’t afford to purchase a home.
The PMI assists homebuyers who can’t come up with a 20 percent down payment by financially protecting lenders in case the minimally invested borrower defaults. Also, the coverage can add hundreds of dollars to the borrower’s monthly mortgage costs.
PMI is no longer required once the property has accrued at least 20 percent equity. The 20 percent goal can be achieved using a few simple payment plans, including paying down the loan, property enhancement improvements, and of course most often through appreciation. In order to cancel PMI, a lender will require proof that the home has grown 20 percent in equity and will require the borrower to submit a professional appraisal report that reflects the growth.