Down payment is equal

The traditional down payment is equal to 20 percent of the loan's value. That large amount paid upfront reduces the risk of default. Yet most first-time homebuyers today are not able to contribute a full 20 percent. To reduce the risk of these loans, lenders require borrowers to pay private mortgage insurance (PMI) until they earn roughly 20 percent in equity in their home. In addition, even though the homeowner pays the premiums, the insurance actually protects the lender. If the borrower defaults on the loan, the insurance will reimburse the lender for the associated losses.