“You need a 20% down-payment saved to buy a home.”
We’ve all heard it before, but by now most informed buyers know that you can buy a home with much less than 20%. So where did this “golden standard” myth come from?
Until the 1950s, putting 20% down on a home wasn’t just a suggestion; it was the rule. This was in favor of the banks who wanted an insurance policy in case the homeowner defaulted on their loan. However, as home values began to increase over time, banks recognized that it wasn’t feasible to limit homeownership to those who could afford to save such a hefty down-payment. Thus, in 1956, private mortgage insurance (PMI) was born.
With student loan payments and rising rents, saving a fifth of a home’s value just simply isn’t on the radar for many young homebuyers today. While PMI may increase your monthly payment, it is an opportunity for many to purchase their home sooner rather than later, allowing them to start building equity instead of sinking more money into renting.
For those adamant about getting the lowest interest rate and avoiding private mortgage insurance, a 20% down-payment is still something to aspire to. However, it’s always important to consider your unique financial situation and what amount will be the most comfortable for you.
If you’re ready to explore your financing options, speak to a Pulte Mortgage Financing Advisor today!
Sources:
The Mortgage Reports
