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If you make a down payment of less than 20% on your home, you’ll probably have to purchase private mortgage insurance. When you make a smaller down payment, lenders tend to consider you a higher-risk candidate for a mortgage, and the PMI requirement protects your lender in case you default on your loan.

Although PMI makes it possible for prospective homeowners, especially first-time buyers, to qualify for a mortgage with less than 20% down, the monthly premium will add hundreds of dollars to your mortgage payment every month — so make sure to account for this expense when figuring out your home-buying budget. PMI is required for conventional loans and FHA loans, but some loan types, like VA loans, do not require it.