What is PMI (private mortgage insurance)?

Contrary to what you might think, PMI (private mortgage insurance) is NOT something you want.

This is insurance that a lender charges you when you put down LESS than 20% of the purchase price, and your mortgage is greater than 80%. This insurance is for the benefit of the LENDER in case you, the borrower, default on the loan. The monthly insurance payment amount increases as you put down less, with a minimum of 3-5% that you can put down. It can be eliminated automatically once the loan falls to 78% or less of the original value, or if the loan is refinanced into one that does not require PMI.

FHA loans also require mortgage insurance, but it's required by the Federal Housing Authority (rather then being provided by private companies), and is more expensive than PMI. The mortgage insurance for FHA loans is required regardless of down payment, and is usually part of the mortgage payment for the life of the loan or until the loan is paid off or refinanced.