Should the homeowner go into default and fail to make his required payments on the mortgage, the lender is protected. Likewise, should the homeowner be unable to amass a down payment large enough to satisfy the 20% scenario, he can still acquire a mortgage and thereby purchase his first home.

PMI is purchased through a private insurance company and since it is tacked onto the mortgage payment, it essentially increases the amount that a homeowner has to put out each month on top of the monthly portion of taxes, homeowner's insurance, and mortgage payment. The premium or monthly payment is typically added to the mortgage payment.

In the event that a homeowner reaches a point that he has paid a sufficient amount into the principle portion of his mortgage to reach a loan balance of 80% of the home's appraised value at the time of its purchase, he is in a position to cancel the PMI. However, certain conditions must also be met including no late payments 30 days or longer within the last year and no late payments of 60 days duration or longer within the last two years. If these conditions are met, then the homeowner can request a cancellation of the PMI from his lender.

In order to avoid paying PMI, potential homeowners who have less than the required 20% of the home's value for a down payment often take out two mortgages. With the primary mortgage, the homeowner places the minimum 20 % down payment to avoid PMI. This amount is much smaller and more affordable than it was when the homeowner was contemplating only one mortgage.