An insurance policy required on conforming loans when the homebuyer puts less than 20% down on a property.
Private mortgage insurance (PMI) is a policy required on conforming loans when the purchase's starting loan-to-value ratio is greater than 80% LTV (i.e., less than a 20% down payment). Mortgage insurance protects the lender in case the borrower defaults on their mortgage loan.
The mortgage insurance required on conventional loans is called “private” mortgage insurance to contrast it with the government-issued mortgage insurance associated with FHA loans. The premiums can be paid in lump sums at close or on a monthly basis, or as a combination of both. The cost of private mortgage insurance depends on the down payment percentage, the loan amount, and the borrower’s qualifying credit score.