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 percent of a home’s purchase price.
However, if you purchase private mortgage insurance, the down payment requirement can drop to 5 or 10 percent 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.
Copyright© 2015 RISMedia, The Leader in Real Estate Information Systems and Real Estate News. All Rights Reserved. This material may not be republished without permission from RISMedia.
Content on this website is copyrighted and may not be redistributed without express written permission from RISMedia. Access to RISMedia archives and thousands of articles like this, as well as consumer real estate videos, are available through RISMedia's REsource Licensed Content Solutions. Offering the industry’s most comprehensive and affordable content packages. Click here to learn more! http://resource.rismedia.com