The myth that a 20 percent down payment was a necessity to buy a home is one of the biggest impediment that keeps many borrowers from becoming homeowners according to a report by the U.S. Mortgage Insurers (USMI) association.
As prices rise steadily, “it is understandable how 20 percent of the purchase prices can be out of reach for many families,” the report said, indicating that private mortgage insurance (MI) actually helped borrowers bridge the down payment gap to help them obtain the financing needed to purchase a home.
According to the report, MI has given nearly 30 million families across the country the opportunity to purchase a home sooner over the last 60 years, with more than a million borrowers becoming homeowners or refinancing their mortgage through MI’s efforts in 2017. Of these, 56 percent were first-time homebuyers and more than 40 percent had an income below $75,000.
“These homebuyers had an average FICO score of 741 and on average took out a mortgage loan for $237,961,” the report said.
When it came to loans through the GSEs, the report indicated, for loans with down payments under 20 percent of the home value, MI and not the taxpayers covered the first losses in case of a default, up to a certain coverage limit. It found that the MI industry covered more than $50 billion in claims for losses and $920 billion worth of GSE mortgages that were currently outstanding had MI protection.
“This report confirms what we have long known: MI is a critical piece of the U.S. housing finance system, helping Americans realize the dream of homeownership while providing important protections to taxpayers and the federal government,” said Lindsey Johnson, President of USMI. “For decades, low down payment borrowers have relied on MI to help them affordably and responsibly buy a home, and MI will continue to serve countless more prospective homebuyers in the years to come.”
In terms of states, the report found that Texas, with 79,030 homeowners led the states where MI helped homeowners in 2017. Coming in second was California with 72,938 homeowners, followed by Florida (69,827); Illinois (47,866); and Michigan (41,810) where homeowners could purchase or refinance a home with MI.