Nearly half of all borrowers still believe that they need to have at least 20% down to qualify for a mortgage. What borrowers fail to realize is that the 20% mortgage down payment standard is all but dead. Companies like Primary Residential Mortgage, Inc., a mortgage firm in Utah offer various loan options to help borrowers purchase the home of their dreams, in fact.
The persistence of this belief, however, is enough to keep first-time homeowners out of the market. Here’s what you need to know if you’re planning to purchase a house for the first time:
Making Down Payments that Are Lower than 20%
Lenders often name 20% as the standard mortgage down payment rate, even if this isn’t the case in practice these days. Statistics from the National Association of Realtors (NAR) show that 70% of non-cash, first-time homebuyers have been making down payments lower than 20% for the past five years. Michael Facchini, for instance, only put 5% down after buying a multi-family building in 2003.
Low Down Payment Programs are not New
Further research from NAR shows that only 13% of borrowers aged 34 and below, are aware that buying a home with only 5% down payment is possible. Some mortgages that require little to no down payment include Federal Housing Authority (FHA) and Veteran’s Affairs (VA) loans. The FHA has been offering loan programs requiring only 5% down since the 1980s.
So, are lenders deliberately misleading their clients? Experts say it isn’t the case. They believe that the 20% down became the gold standard because such loans are less risky than other low down payment mortgages and, thus, a more attractive option for lenders.
The Benefits of Higher Down Payments
While being able to put down 20% of the overall mortgage isn’t the strict requirement, there are benefits to putting down a bigger payment. Apart from speeding up the application process, borrowers won’t have to pay for mortgage insurance, and they will earn a lower mortgage interest rate. Additionally, since they already paid off a sizable part of the mortgage, homebuyers can enjoy an overall lower monthly payment.
Buying a home with little down payment is a good financial move as long as borrowers save money on hand for other expenses like closing costs and property taxes. To expand homeownership opportunities, however, there is a need to correct consumer misconceptions about buying a home. Borrowers may, after all, qualify for a home loan without knowing it. Buying a Home is Possible Even without a 20% Mortgage Down Payment