What does PMI stand for in real estate finance?

In real estate finance, PMI stands for Private Mortgage Insurance. This type of insurance is typically required when a borrower is unable to make a down payment of at least 20% of the home's purchase price. PMI protects the lender in case the borrower defaults on the loan, mitigating their risk. It allows borrowers who may not have enough savings for a large down payment to still qualify for a mortgage, thereby facilitating homeownership.

The presence of PMI serves as an important tool in the financing process, making it possible for more individuals to enter the housing market. Once the borrower has accrued sufficient equity in the home, often at a level of 20% or more, they have the option to request the cancellation of PMI. Understanding PMI is crucial for anyone involved in real estate finance, as it impacts both the cost of the mortgage and the strategies for home purchasing.