“PMI” stands for “Private Mortgage Insurance” and “MI” (previously referred to as “MIP”) stands for “Mortgage Insurance”. PMI is charged by banks and conventional lenders and MI is charged in conjunction with VA and FHA loans. Both PMI and MI are types of insurance, which are required by the lender if the borrower does not provide a substantial amount of cash (typically at least 20%) toward the purchase of the property. In such cases, the property is less likely to provide adequate security for the loan, since it may not sell for enough to pay off the loan and foreclosure expenses if the borrower defaults on the loan. PMI and MI provide insurance to the lender to cover this potential loss. Although the borrower pays the cost of this insurance, it is entirely for the benefit of the lender and not the borrower.
