What does private mortgage insurance actually cover?

Private mortgage insurance (PMI) protects lenders in case a borrower defaults on their mortgage, particularly when the down payment is less than 20% of the home's purchase price. PMI does not cover the homeowner's property or pay for any losses to the borrower; instead, it mitigates the lender's risk. If the borrower fails to make payments, PMI allows the lender to recover some of the losses incurred from foreclosure. Ultimately, PMI is an additional cost for borrowers to access financing with a lower down payment.