What Is PMI in Real Estate?

In real estate, PMI (Private Mortgage Insurance) is a fee that protects the lender if a borrower defaults on a conventional mortgage. It’s usually required when the buyer’s down payment is less than 20% of the home’s purchase price.

💡 How PMI Works

  • Who pays PMI: The borrower pays monthly premiums, added to their mortgage payment.
  • Why it exists: It protects the lender, not the buyer, in case of loan default.
  • When it’s required: For most conventional loans with less than 20% down.
  • How to remove it: Once you reach 20% equity, you can request cancellation—or it automatically ends at 22% equity.

✅ Types of Private Mortgage Insurance

There are several ways PMI can be structured depending on the loan type and borrower preference:

  • Borrower-Paid PMI (BPMI): The most common—paid monthly until canceled.
  • Lender-Paid PMI (LPMI): Built into the loan’s interest rate, cannot be canceled.
  • Single Premium PMI: Paid upfront at closing.
  • Split Premium PMI: Combines a small upfront fee with lower monthly payments.

🏡 PMI and FSBO Sellers

Even though PMI mainly affects buyers, sellers should understand how it influences buyer eligibility. If your buyer is using a low down payment loan, PMI can impact their total monthly payment and qualification amount.

Knowing this can help FSBO sellers better evaluate offers and anticipate closing timelines, especially if buyers are still waiting for loan commitment approval.