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The Facts (and Myths) on Down Payments and PMI

Thinking about buying a home and worried about your down payment? You’ve likely heard the rule of thumb about not purchasing a home unless you can put 20 percent down. Before accepting this myth, Freddie Mac suggests doing your homework, weighing the pros and cons regarding your down payment options, and separating the facts from the myths.

Fact or myth? The more you put down, the lower your monthly mortgage payment will be and the less you’ll owe the bank. 

Fact: It’s a simple numbers game— the more you pay now, the less you pay monthly during the life of the mortgage. However, if putting 20 percent down is not an option or will deplete all your savings and leave you with no financial cushion, it’s probably not in your best interest.

Fact or myth? Your down payment must come from your own savings.

Myth: Your down payment can come from a number of sources, including personal funds, gift funds, grants and affordable second mortgages. In addition, many state, county and city governments provide financial assistance for people in their communities who are well-qualified and ready for homeownership.

Fact or myth? A growing number of borrowers are putting down less than 15 percent. 

Fact: The average down payment among first-time homebuyers in 2016 was 6 percent, and 14 percent for repeat buyers. You can even put down as little as 3 percent through mortgage options such as the Freddie Mac Home Possible Advantage mortgage.

Fact or myth? Homebuyers who put down less than 20 percent have to pay Primary Mortgage Insurance (PMI), an added insurance policy that protects the lender if you are unable to pay your mortgage. 

Fact: Although you’ll have to pay PMI for a conventional loan with a down payment of less than 20 percent, you still will be able to take advantage of the 30-year fixed rate mortgage that can offer you security and peace of mind throughout the life of your loan.

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