Private Mortgage Insurance (PMI)
When your down payment is less than 20% you will need PMI.
his protects the lender in case you don't make your house payments.
This doesn't mean you can blow off making your house payments -- if you
fail to pay, the bank will still repossess your house.
company will pay the bank the difference between 20% and the amount you
actually put down. If you put down 5% and default, the insurance
company pays the bank the other 15% that you didn't pay.
The smaller your down payment, the more expensive
the PMI is.PMI is usually (but not always) canceled automatically
once you own 22% of
It used to be that the insurance company would keep
happily charging you the premium forever, since many homeowners didn't
know they could cancel. This was obviously taking advantage of the
uninformed homeowner, so now insurance companies are required by law to
automatically cancel your PMI as soon as you own at least 22% of your
home, based on the original purchase price, although in some cases
they're not required to automatically cancel (which we'll cover in a
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