Mortgage insurance is required for people who are interested in a house and they want to put a down payment with less than 20% of the sales price. The mortgage insurance exists to help make you a more attractive candidate to lenders. Mortgage insurance is an insurance policy that compensates the lenders or investors for the losses due to the default of a mortgage loan.
This is also commonly called PMI (Private Mortgage Insurance). However, mortgage insurance is generally not required if you consider making a down payment of at least 20 percent on the purchase price of a home. Also, with most programs once you have paid up to 80% of the home’s original appraised value, you may ask the lender to cancel PMI or you can avoid a PMI by paying 20% of the house’s value on a down payment. If you are obtaining an FHA loan the mortgage insurance is issued by the government. The rules with FHA mortgage insurance are very different and should be discussed with your loan officer.