What is PMI insurance, and how does it work?

If your down payment is less than 20% of the purchase price of your house, you may be required by your mortgage lender to acquire private mortgage insurance (PMI). If you fail on your mortgage, PMI will cover the lender’s losses. PMI is often needed for homebuyers who receive a traditional loan and put down less than 20% of the home’s buying price. Inquire about private mortgage insurance or mortgage insurance premiums for the loan you are contemplating (MIP).
On average, the annual cost of PMI varies from 0.3 percent to 1.5 percent of the initial loan amount, depending on your credit score and down payment. On top of your mortgage interest, you’ll have to pay for this additional expense. PMI may be paid upfront at closing or as a monthly installment. You may also have to pay a one-time fee, as well as a monthly fee. On the other hand, it varies from lender to lender.