1. Private Mortgage Insurance (PMI)
As you probably know, this type of insurance increases the cost of homeowners’ monthly mortgage payments. If you have a private mortgage insurance you will be protected against loss when you lend to a higher-risk borrower. To sum things up, the borrower pays for this type of insurance but derives no benefit.
PMI is actually required if you buy a home with a down payment of less than 20 percent of the home’s value. The small down payment is considered as putting you at risk of defaulting on the loan. So, if you put down at least 20 percent, you don’t have to opt for private mortgage insurance.