You know that you need a down payment for a home when you're applying for a mortgage. But did you know that a small down payment may mean you need to purchase private mortgage insurance (PMI)? Learn what PMI is, how it works, and who needs it.
What is PMI?
Mortgage insurance protects your lender if you default on your mortgage. Home buyers who are putting down less than 20 percent will be required to purchase this insurance. If you own a home and you decide to refinance, you may need to purchase PMI if your established home equity is under 20 percent.
You'll pay a one-time premium for PMI, which is expressed as a percentage ranging from 0.6 to 4.5 percent of your mortgage. This premium can be paid upfront to keep your interest down, or added…