Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It is required primarily for borrowers making a down payment of less than 20%.

How does mortgage insurance work? Is it like home or auto insurance?
Like home or auto insurance, mortgage insurance requires payment of a premium. It is for protection against loss and is used in the event of an emergency. If a borrower can't repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.

Do I need mortgage insurance? How do I get it?
You need mortgage insurance only if you plan to make a down payment of less than 20% of the purchase price of the home. The FHA offers several loan programs that may meet your needs. Ask your lender for details.

What is PMI?
PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI companies usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.

The cost of PMI increases as your down payment decreases. This cost typically is added to your monthly mortgage payment.