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What does a mortgage down payment mean and what is private mortgage insurance (PMI)?

The down payment is the amount of money (usually 20% of the home price) that you will pay upfront to get the mortgage. The rest of the home price is the mortgage amount that will be loaned to you from the bank.

Private mortgage insurance (PMI) is insurance that is provided by a private insurance company to protect the lender. Lenders will arrange for you to get PMI if they think you are a risky borrower—usually if you can’t afford to put 20% down or if you are using a government-backed FHA or USDA loan. PMI premiums are calculated into your monthly mortgage payments and rates are typically between 0.5% to 1.5% of the total loan value annually.