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I've seen the term PMI used a couple of times on this site and don't know what it is. What is it?

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up vote 8 down vote accepted

Private Mortgage Insurance. It's money that you pay to an insurance company to make the lender whole in the event that you go into default. It's a real waste of money for you.

If you are trying to finance more than 80% of the value of a home, a standard mortage is likely to require that you get PMI. Nowadays there are other options which involve paying substantially more interest.

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+1 for real waste of money – MrChrister Oct 10 '10 at 17:16
Unless, of course, you qualify for a VA loan. Then you can borrow up to the full value of the house without paying PMI. – Kevin Apr 12 '11 at 20:08

Yes, PMI is what the lender requires to loan you more than 8O% of the home's value. I could easily present scenarios where it's exactly the right decision to use PMI and get the purchase done. A 100K mortgage at 90% LTV will cost you $521/year in PMI. If you are renting and struggling to get a higher downpayment, it can take quite a long time to save the additional $11K to put down. Only the buyer can know if the house is such s bargain, or if rates have bottomed, but the decision isn't so clear cut.

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