>>19658213LB

Homeowner's insurance protects the homeowner in the event damage occurs.

Private mortgage insurance, or PMI, protects the bank when the homeowner does not have adequate equity in the home. VA loans do not have PMI, because the VA essentially gives the bank a promissory note, known as the "Certificate of Eligibility" for the veteran buyer, which gaurantees the bank a certain payoff should the buyer default on the mortgage. With other types of loans (FHA, Conventional, etc), the bank requires the buyer to make a 20% or higher down payment at the time of purchase to avoid PMI. If the buyer cannot afford to put down that much $, PMI is added to the monthly mortgage payment. This is so the bank can recover their losses in the event the buyer defaults and does not have enough equity in the home for the bank to avoid losses when foreclosing on the home.