What does PMI stand for in relation to mortgage loans?

PMI stands for Private Mortgage Insurance. It is a type of insurance that lenders typically require from borrowers when they are unable to make a significant down payment on a home, often less than 20% of the property’s purchase price. The purpose of PMI is to protect the lender against the risk of default on the loan. In essence, if a borrower defaults and the property goes into foreclosure, PMI helps the lender recover some of their losses.

This form of insurance allows homebuyers to obtain loans with lower down payments, making homeownership more accessible, especially for first-time buyers who may not have substantial savings. It is important to note that PMI is not the same as homeowner’s insurance, which protects the homeowner’s investment in case of damages or losses to the property directly.