Mortgage insurance is a type of insurance policy that protects lenders in case a borrower defaults on their mortgage loan. There are two primary types of mortgage insurance:
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Private Mortgage Insurance (PMI): Typically required for conventional loans when the borrower’s down payment is less than 20% of the home’s purchase price. PMI protects the lender by reimbursing them if the borrower defaults on the loan.
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Mortgage Insurance Premium (MIP): This insurance is associated with FHA (Federal Housing Administration) loans. MIP serves a similar purpose to PMI but specifically supports the FHA program, which allows borrowers to get mortgages with lower down payments and less stringent credit requirements.
Both types of mortgage insurance enable lenders to mitigate their risk when offering loans to borrowers with smaller down payments, making homeownership more accessible to individuals who might not otherwise qualify for a conventional mortgage.