Delaware, Pennsylvania: Mortgage insurance, private mortgage insurance, lender's mortgage insurance versus mortgage life insurance

Owning your own Delaware, Maryland, Pennsylvania or Virginia home used to require a substantial down payment: at least 20 percent. These days, you can obtain a home loan even if you have less than that amount in hand. However, your lender is likely to demand that you purchase mortgage insurance. This is his (or her) guarantee that the mortgage will still be taken care of, in the event that you are not able to make the payments. Here's how mortgage insurance works.

What is mortgage insurance?

Mortgage insurance is often called private mortgage insurance or lender's mortgage insurance to distinguish it from mortgage life insurance, which is initiated by the homebuyer. PMI is a policy required by the lender when you wish to buy a new, resale, or custom-built home with a smaller-than-usual down payment — less than 20 percent of the home's selling price or its appraised value. This type of insurance will protect the lending institution in case of default.

PMI is not applicable to home loans guaranteed by the Federal Housing Administration, the Department of Housing and Urban Development, or the Veterans Administration, which have their own form of mortgage insurance.

What is the advantage to you, the potential Delaware, Maryland, Pennsylvania or Virginia homebuyer?