Final answer:
Primary Mortgage Insurance (PMI) is an insurance policy that protects the lender in case the borrower defaults on their mortgage payments. It is typically required when the borrower makes a down payment of less than 20% of the home's purchase price.
Step-by-step explanation:
Primary Mortgage Insurance (PMI) is an insurance policy that protects the lender in case the borrower defaults on their mortgage payments. It is typically required when the borrower makes a down payment of less than 20% of the home's purchase price. PMI allows lenders to offer loans with lower down payment requirements, making homeownership more accessible to borrowers.
For example, if a borrower puts down 10% on a $200,000 home and defaults on the mortgage, the lender can file a claim with the PMI provider to recover a portion of the remaining balance.