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A down payment of at least 20% of the appraisal lending value or sale price (whichever is less) is not a factor in obtaining favorable terms for a mortgage.

True
False

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Final answer:

It is false that a down payment of at least 20% is not a factor in obtaining favorable terms for a mortgage. Making a substantial down payment helps avoid mortgage insurance and secure lower interest rates, while lower down payments increase overall loan costs and risks.

Step-by-step explanation:

The statement that a down payment of at least 20% of the appraisal lending value or sale price (whichever is less) is not a factor in obtaining favorable terms for a mortgage is false. A down payment is a principal factor in the terms of a mortgage loan. A general benchmark is to put down 20% of the home's purchase price. Making a substantial down payment can help to obtain a lower interest rate and avoid the need for mortgage insurance, which is an extra fee that protects the lender in case the borrower defaults.

However, some borrowers may be able to secure a mortgage with a significantly lower down payment, sometimes as low as 0-3.5%. While this can make homeownership more accessible, it generally requires the borrower to purchase mortgage insurance, increasing the overall cost of the loan. The 20% down payment is also a protective measure against being "upside-down" on a mortgage, which happens when the loan's balance is greater than the value of the property.

In contrast, subprime loans often came with low or zero down-payment options, leading to higher risk for both the lender and the borrower. These loans contributed to the housing market crisis when home values dropped, and borrowers found themselves in debt for homes worth less than the loan amount. Therefore, while lower down payments are possible, they carry additional risks and costs.

User Mahmoud Haj Ali
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