Question

When you borrow money to buy a home, the lender typically expects you to pay 15% of the purchase price of the home upfront as a down payment. If a home costs $356,000.00, how much of a down payment do you need to make in order to avoid having to purchase PMI? Round your answer to the nearest cent.

a) $53,400.00
b) $50,600.00
c) $48,400.00
d) $60,400.00

Answer 1

To avoid PMI when purchasing a home costing $356,000, a 20% down payment is required, which amounts to $71,200. This figure is not among the given options, as a 15% down payment would not be enough to avoid PMI. The correct option is c) $48,400.00.

Step-by-step explanation:

The 20% down payment is a common threshold to avoid PMI, as it signifies a lower loan-to-value ratio and reduces the lender's risk. Private mortgage insurance is typically required when the down payment is less than 20% of the home's purchase price. The calculated down payment of $71,200 in this scenario aligns with the standard practice to avoid PMI.

It's important to emphasize that a 15% down payment, which might seem substantial, would not be sufficient to avoid PMI according to standard practice. Homebuyers should be aware of PMI implications and work towards meeting the 20% down payment threshold to potentially save on insurance costs over the life of the mortgage.