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I've never understood the need for a downpayment to purchase. If you can make the monthly payments that's all that should matter.
In theory I guess it protects against the costs of dealing with defaults or having people walk away from underwater mortgages. But on the other hand, all of that stuff could be insured against.
Thats exactly what PMI (Private mortgage insurance) covers. However if the insurance company doesn't think you're a good risk, then you might not be able to get that either. I have never looked at what criteria they use to grant or deny PMI. I've also never known anyone personally denied PMI.
The downpayment requirements are much looser now then they used to be. Pretty much anyone in the US can get as low as 3 to 3.5% down, which means the down payment can easily be less than all the other home buying expenses (closing cost, inspection, title insurance, loan origination, moving, transfer taxes, ...). You also typically have a month before you need to make your first principle repayment, which helps offset the down payment.
Veterans, active service members, and people buying in qualified rural areas can get 0 down mortgages.
Depending on where you live, there might be further assistance available. Around here, the county offers (means tested) down-payment assistance loans that cover 100% the minimum down payment, and has an interest rate that is at least 2% lower than that of the main loan. They also wave all transfer taxes for all first time buyers.
It's risk mitigation for the banks. You don't have to put 20% down, but generally you'll have to pay an additional insurance (PMI) if you don't.
Its to keep us uppity poors on the down low
Exactly. The entry is a hurdle for many when that money could be used for repairs.
It is called credit risk lol