The Lowdown on Down Payments & Mortgage Insurance

The 20% Down Payment Myth

Many first time home buyers believe they must put 20 percent down on a home. But that is far from the truth! In 2019, NAR found that the average down payment on a house or condo was just 12 percent1. For first-time buyers, that number drops to six percent, and many put down much less. Down payments are flexible and there are an array of options that could be available to you. Below are a few things to consider as you put together your home buying budget.

Where did the 20% Myth Come From?

You may be wondering why so many people think 20 percent is the minimum down payment, and why anyone would want to put 20 percent down when there are many available rate options for less. That is because paying 20 percent allows you to avoid paying mortgage insurance. But there are benefits to paying mortgage insurance if it puts you in a home sooner.

Mortgage Insurance Basics

Mortgage insurance (MI) makes it possible to put down a smaller down payment, less than 20 percent, and still qualify for a home loan. This protects the lender from any potential loss in case you were to default on the loan. Here are the 2 most common types of Private Mortgage Insurance (PMI) to keep in mind if you decide to put down less than 20 percent.

Borrower Paid (BPMI)

  • Most common type of mortgage insurance.
  • Will show as a monthly fee that you pay with your mortgage payment.

Lender Paid (LPMI)

  • Your lender will pay for the insurance up front and pass the cost on to you in the form of a slightly higher interest rate for the life of the loan.
  • Refinancing is the only way to lower your monthly payment as the interest rate will not decrease once you have reached 20 or 22 percent equity as it would with BPMI.

Pros and Cons of Your Down Payment Size

Keep in mind there are both benefits and disadvantages to both a big or smaller down payment. Take a look at your finances and home buying goals to figure out the right down payment size for you. These are things to consider as you form your home buying budget and advance on your path for a place to call home:

  • Bigger Down Payment = Lower Interest Rate
  • Bigger Down Payment = Lower Monthly Payment
  • Smaller Down Payment  = Stop Paying Rent, Buy A Home Sooner
  • Smaller Down Payment = Start Building Equity Faster

By speaking directly with a George Mason Mortgage loan officer, we will help guide you to the options that will work best for you.

1https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers 

Related Articles

Refinancing 101

Refinancing 101

Rates have hit an all-time low and have left homeowners scrambling to refinance their mortgages. You have most likely heard in casual conversations with friends …

Read More →

Your Journey Home

Knowing the path will travel together helps the journey go more smoothly. We have outlined some important highlights so you know what to expect along …

Read More →

Homebuyer Tips

Our goal is to make your home buying experience as smooth as possible. We have highlighted some best practices to help keep your finances in …

Read More →

Getting Started

Whether you are buying your first home, right-sizing now that the kids are gone, navigating the jumbo luxury market, renovating your home, or working with …

Read More →

Choosing The Right Down Payment

A down payment is the amount you pay toward the home yourself. You put a percentage of the home’s value down and borrow the rest …

Read More →

Built Just For You

NEW CONSTRUCTION, CUSTOM HOME & RENOVATION HOME LOANS Our extensive knowledge of the new construction and renovation loan market allows us to offer a wide …

Read More →
Scroll to Top