The 20% Down Myth

The 20% Down Myth

20% Down Payment

After many years of working with and educating future homebuyers, I still find that many people (especially first-time homebuyers) believe that they need to save for a 20% down payment before they can buy a home. This is not true. For conventional loans, which is what we do at RMC, you can put down as little as 3%, but you will need to pay private mortgage insurance (PMI).

Mortgage Insurance

Mortgage insurance protects the lender. If you default on your loan, mortgage insurance reimburses your lender. But, without mortgage insurance, lenders would still require 20% down. So, it has enabled many more people to be able to buy a home.

Also, the cost of mortgage insurance has decreased significantly over the years I have been originating mortgages. For example, if you have excellent credit and are buying a condo for $500,000 with 10% down, your mortgage insurance cost is only $60.00/month. In addition, your mortgage insurance is automatically removed once your loan to value reaches 78%, and you can request to have it removed at 80%.

Pros of Mortgage Insurance

In summary, the pros of mortgage insurance are:

  • You can buy a home sooner. The answer to the question “When is the best time to buy a home?” is last year!
  • You can choose to make a smaller down payment and keep the money for emergencies or future home projects and updates.
  • You can keep your money growing in an investment account rather than stuck in the house. The expense of mortgage insurance could turn out to be a profitable investment.

Please contact me with any questions.

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