Down Payment and Private Mortgage Insurance (PMI)

There is a direct link between the down payment amount and the requirement for Private Mortgage Insurance (PMI). If a borrower puts down less than 20% of the purchase price, the lender usually requires them to purchase PMI. This insurance policy protects the lender—not the borrower—in case of default. It allows buyers with smaller savings to still qualify for a conventional loan, though it increases their monthly payment. Once the borrower’s equity in the home reaches 20%, they can generally request to have the PMI removed.