What is the impact of a 20% down payment for conventional loans?

• A. It qualifies the borrower for government assistance
• B. It usually eliminates the need for private mortgage insurance
• C. It ensures a fixed interest rate for the loan
• D. It guarantees immediate equity in the property

Answer: (B)

A 20% down payment on a conventional loan is significant because it typically eliminates the need for private mortgage insurance (PMI). PMI is usually required when a borrower makes a down payment of less than 20% to protect the lender in case of default. By putting down 20%, the borrower demonstrates a lower risk to the lender, as they have more equity in the home upfront.

Also, the elimination of PMI can lead to lower monthly payments, making the loan more affordable over time. This feature is particularly advantageous for borrowers who want to reduce their overall loan costs. While the other options touch on important aspects of mortgage financing, they do not capture the specific benefit tied to a 20% down payment as directly linked to the requirement for PMI.