Homeowner's Insurance vs Private Mortgage Insurance

October 30, 2017

Understanding homeowner’s insurance and private mortgage insurance is an important part of the homebuying process. While these terms may be new to you (especially if you’re a first-time homebuyer), we have all the info you need to know before making your home purchase: 

What’s the Big Difference? 

Homeowners insurance covers your property itself. Each insurance plan is different, but it typically protects damage to the structure of your home and your personal belongings, and liability in the case of a lawsuit. 


Private Mortgage Insurance (PMI) protects your lender if you stop making payments on your loan. It typically comes in the form of a monthly payment that is added to your existing mortgage payment, and is usually required for those who make a down payment of less than 20%. 

Do I Need Both? 

It depends.Homeowners insurance is not required by law for owning a house. However, your lender will likely require it in order to take out a mortgage with them. Not only does it benefit you by protecting your home, possessions, and legal well-being, it also benefits your lender – since you’re using their money to finance your home, it’s an investment for them, too. All in all, it’s wise to have.


When it comes to PMI, you’ll only need it if you pay less than 20% down. Because a smaller down payment indicates a higher risk, most lenders will require PMI as a security blanket so they don’t suffer loss if you don’t make your loan payments.

You might be thinking, “Okay, so does it benefit me?” Yes! Paying a little extra each month for PMI allows you to have a smaller down payment. Essentially, the money you’re saving up front will add up each month in your PMI. Like homeowner’s insurance, it can be mutually beneficial. 

Homeowners Insurance vs. PMI: Fast Facts 

Homeowner’s Insurance

Private Mortgage Insurance (PMI)

Is it required?

Not by law, but probably by your lender

Yes, if you pay less than 20% down

What does it cover?

Damage to your house, damage to your belongings, liability

Protects your lender from the effects of loan default

Does it benefit me?

Yes, it provides financial security for you, if your home and/or belongings are damaged

It can, because it allows you to purchase a home with less than 20% down