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Expert Insights: Why Do Lenders Require a Down Payment?

millennials_down_payment

It protects them should you default on the loan, especially if you fail to make payments in the early years of the loan when more is owed on it. Foreclosure, property fix-up, and resale costs could result in a loss on the mortgage loan.

That is a bad situation the lender wants to avoid. So they have historically required cash down payments of 20% of a home’s purchase price.

However, if you purchase private mortgage insurance, the down payment requirement can drop to 5% or 10% of the purchase price.

Few lenders will lend the full value of a home unless they have special guarantees, such as that offered by the Veterans Administration (VA) under its mortgage assistance program.

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Sotheby’s International Realty
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WHO YOU WORK WITH MATTERS

Victor Pais  |  Nick Sadek 
Sotheby’s International Realty
Cal DRE License# 01709269

Serving Placer, Sacramento, El Dorado and the surrounding areas with a full-service real estate experience. +1 916.622.0363

 

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