What is Mortgage Insurance (PMI / MIP)?
Mortgage insurance is a policy that protects the lender — not the borrower — if the loan defaults, and it is usually required when a buyer puts down less than 20%. On conventional loans it is called PMI (Private Mortgage Insurance) and can often be removed once enough equity is built; on FHA loans it is called MIP (Mortgage Insurance Premium) and follows different rules.
Example: A buyer puts 5% down on a conventional loan, so the lender adds about $120 per month in PMI. After the balance drops to 80% of the home’s value, the buyer requests that the PMI be removed.