The common recommendation for homebuyers is to give 20 percent of a home’s price as an initial down payment. However,
producing 20 percent isn’t always required. However, that’s where private mortgage insurance, or PMI, becomes
relevant.

What is PMI? 

PMI is a type of insurance used by lenders to protect their funds and is required for borrowers who opt to pay less
than 20 percent. 

This insurance protects the funding the lender invests in the home. If a loan borrower doesn’t repay the mortgage
cost, the lender is still financially secure thanks to the PMI coverage.

Three primary types of PMI

PMI comes in three primary types. The first being borrower-paid, then single-premium and finally split-premium.

Borrower-paid mortgage insurance: With this insurance type, your monthly bill includes your
insurance premium. 

Single-premium mortgage insurance: The entire cost of the insurance payment is packaged as one
single payment versus multiple monthly payments. The total can be added on to the loan amount or paid at the home
closing in its entirety. 

Split-premium mortgage insurance: A higher amount is paid at the beginning of the loan term,
decreasing the proceeding PMI payment obligations. 

PMI is a great resource for those hoping to put down less than 20 percent on their new home. It’s often a fantastic
opportunity to put money away for home improvements, repairs or start saving for mandatory system upgrades.

Regardless of your situation, if you opt for PMI, be sure to fully review every facet provided by a lender. If you
don’t know where to start searching for a lender, give your real estate agent a call. They should be able to point
you in the right direction.