Mortgage

Is the 20% Mortgage Down Payment is dead in 2021?

FHA loans which are backed by the Federal Housing Administration and require a minimum of 3.5% down payment.

Is the 20% Mortgage Down Payment is dead

The practice of putting down 20 % as the down payment for a mortgage has been encouraged over time. However, in reality, only a few people can afford to do this. For many aspiring homebuyers, a 20% down payment for a mortgage is difficult to save and can be a big obstacle to homeownership.

Many believe that a minimum of 20% down payment on mortgage safeguards the borrower from paying Private Mortgage Insurance (PMI) and will most likely get the lowest available interest rate.

These days, the practice of putting down less than 20% to secure a mortgage is becoming more common, and real-estate agents say it’s a practical way to get into the market. This may be because a lot of people can hardly afford the 20% down payment. This means that your monthly payment will be lower. Also, it tells well on your credit and qualifies you to secure more loans at lower interest rates.

However, more people are buying homes by putting less money down. This may be because of the difficulty involved in getting the 20% minimum especially for those interested in cities.

FHA Loans & USDA Loans

A few programs have also been introduced by the government to meet the needs of aspiring house-owners. With these programs, borrowers can make less than 20% down payment with the consequences of such payment eased. Such programs include FHA loans which are backed by the Federal Housing Administration and require a minimum of 3.5% down payment. The VA loans for military service members and veterans require no down payment.

Same as for the USDA loans for certain rural and suburban buyers. Some conventional lenders even offer down payment assistance grants to allow even lower down payments.

Nevertheless, if you do not qualify for any of these programs, you can still take a loan with less than a 20 percent down payment. A lot of real estate agents are maintaining the position that the benefits of making even less than 20 percent far outweigh the higher interest consequences. Although the borrower pays higher interest, making a lower down payment can help homeowners build wealth faster.

To answer the question of whether 20% of the mortgage payment is dead can be a bit tricky. However, for anyone taking out mortgage loans, it is very important to weigh the pros and cons of each. Also, it is not wise to drain your account on a down payment. Try to choose what works for you and makes you build wealth steadily.

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Harish Yadav

Finance and market analyst and chief writer on howtofinance. Passionate to read books and articles on marketing and accounting. Also edits other articles and publish them here.

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