Glossary
PMI
Private mortgage insurance — a monthly premium that protects the lender, not you, when your down payment is under 20%.
PMI kicks in on conventional loans whenever the down payment is below 20%, and it exists purely to protect the lender against default risk — it pays the lender if you stop paying, not you. Unlike FHA insurance, conventional PMI automatically cancels once you reach 22% equity through payments, and you can request cancellation yourself at 20%. Budget for it as part of the true monthly cost when comparing a low-down-payment offer against a larger down payment.
Related terms
- DTI Debt-to-income ratio: monthly debt payments divided by gross monthly income. Most lenders draw the line at 36–43%.
- Credit score A 300–850 number summarizing your credit risk. It is the single biggest lever on the rate a lender offers you.
- Underwriting The process a lender uses to verify your income, assets, debts, and credit before approving a loan — the "yes or no" behind every offer.
- APR Annual percentage rate — the interest rate plus mandatory fees, expressed as one yearly cost. The only honest way to compare two loan offers.
- FICO score The most widely used credit-scoring model among lenders, built by Fair Isaac Corporation — often used interchangeably with "credit score," though VantageScore is a common alternative.
- Bridge loan A short-term loan that "bridges" a gap — most often financing a new home purchase before your current home sells.