Mortgage insurance protects the lender should the borrower default on the loan. The insurance is typically issued by the FHA or a private mortgage insurer — in the latter case the insurance is known as “PMI”. 

Mortgage insurance is usually required if the home buyer borrows more than 80% of the market value or purchase price of the home.

The insurance allows a borrower to make a down payment as low as 3% of the purchase price instead of the usual 20% down payment lenders want.

If you need PMI, note that it can be cancelled once you reach 20% equity in your home either through price appreciation or by paying down the principal balance for your loan.  You’ll have to make your request in writing to the mortgage lender.