At some point, you’ve probably heard that you need to save at least 20% for a down payment on a house. Thankfully, this is no longer an expected standard in Real Estate, but at one point in time, this was a requirement to purchase a home!
What? A requirement?
The history of the 20% down payment goes all the way back to the Great Depression. After the Great Depression, the Federal Housing Administration stepped in, backing only loans with a 20% down payment. As years passed and industry practices changed, by the 1950s, this government standard became an industry standard, adopted by everyone across the United States.
While a 20% down payment is no longer required to buy a home, it is still the standard down payment if you want to avoid paying mortgage insurance.
What’s mortgage insurance?
To put it simply, just like your auto insurance protects you from severe financial damage(s) if your car were to end up in an accident, mortgage insurance protects your lender and lowers the risk that they acquire when providing you with a loan. This in turn is a monthly payment that you make to your lender. Typically this is lumped into your mortgage payment, so you really never notice the exchange!
The Bottomline is…
While 20% down might still be somewhat of an industry standard, it is no longer a requirement to obtain a loan. This means that if you’ve been hesitant to buy out of fear of savings, you may actually have enough money to cover your down payment!
If you’ve been thinking about buying a home, but you’re concerned about how much money you need to have saved, let’s connect. Not only can Furner Realty Group help you to understand the costs of buying a home, but we are also backed by an incredible local lender who can break down the costs for you, providing you with real numbers and real proof of what you can afford!
Interested in where this information came from? Listen here to the Marketplace Podcast for a quick 2-minute explanation of the origins of the 20% down payment belief.
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