What does the acronym PMI stand for in mortgage lending?

The acronym PMI stands for Private Mortgage Insurance. This type of insurance is typically required by lenders when a borrower makes a down payment of less than 20% of the home's purchase price. PMI protects the lender in case the borrower defaults on the loan. By acquiring PMI, borrowers can secure financing even if they cannot make a substantial down payment upfront, thus enabling them to purchase a home sooner rather than waiting to save a larger amount.

Understanding the role of PMI is crucial for borrowers, as it impacts their monthly mortgage costs and overall financial planning. It's also important for those in the mortgage industry to correctly refer to PMI to ensure clear communication with clients regarding their insurance options and requirements during the home-buying process.