In the context of lending, what does PMI stand for?

PMI stands for Private Mortgage Insurance, which is a type of insurance that lenders require from homebuyers who are borrowing money to purchase a home and are unable to make a down payment of at least 20% of the home's purchase price. This insurance protects the lender in case the borrower defaults on the loan.

When a borrower has less than a 20% down payment, the risk to the lender increases, as there is less equity in the property. PMI allows borrowers to obtain a mortgage with a lower down payment while offering a safety net for lenders. Once the borrower's equity in the home reaches 20% through payments or appreciation, PMI can usually be canceled, thus reducing the monthly payment burden on the borrower.

Understanding PMI is crucial for anyone involved in real estate financing, as it impacts loan costs and determines the borrowing ability of potential homeowners. The other answer choices do not correspond to recognized terms in the context of home financing, focusing instead on terms or interpretations that do not exist in the industry.