I have PMI insurance on a FHA loan. Is this penalty money that I am throwing away? Does it get returned to me?

Yes, it's penalty money to you because you did not save a 20% down payment, so you are insuring the down payment (to the lender) you didn't make to the lender because you are a bigger risk. Once you have paid 20% equity in your home, uming the market value hasn't declined, you no longer have to pay PMI. It is not returned to you, but a cost of your home purchase without sufficient down payment to be a lower risk borrower. All of this is set out in your loan and closing doents, and should have been explained by your lender/loan broker and later by closing agent/attorney.