What does PMI stand for?

PMI stands for Private Mortgage Insurance. It is a type of insurance that protects lenders in case a borrower defaults on their mortgage loan. PMI is typically required when a borrower is unable to make a down payment of at least 20% of the home's purchase price. By requiring PMI, lenders mitigate their risk and allow buyers who may not have significant savings to access home financing.

This insurance generally applies to conventional loans. When a borrower is required to pay PMI, they typically make monthly premium payments, which can vary based on the size of the loan and down payment. Once the borrower builds enough equity in the home, often reaching 20% or more, they can usually request to have the PMI removed, resulting in lower monthly payments.

The other options provided do not accurately reflect the established term in the real estate and mortgage industry, which is specifically known as Private Mortgage Insurance.