Analysis: It Takes Median Household 20 Years to Save 20% Down for Median Home
It would take 20 years for a household earning the national median income of $61,372 to save 20 percent (plus closing costs) for a $262,250 single-family home, the national median sales price. Those are the findings of U.S. Mortgage Insurers (USMI), a trade association for private mortgage insurance companies.
USMI notes that the wait time drops to seven years if the household purchases a home with 5 percent down, where the loan is backed by private mortgage insurance.
"No, you do not need a 20 percent down payment to gain mortgage approval," said Lindsey Johnson, president of USMI. "Our report underscores the critical role private MI plays in helping millions of first-time and middle-income homebuyers bridge the down payment gap across the United States."
According to USMI, in 2018 more than 1 million borrowers used mortgage insurance to purchase or refinance a mortgage; nearly 60 percent of which were first-time homebuyers, and more than 40 percent had annual incomes below $75,000. The average loan amount purchased or refinanced with MI was $244,715 and the average FICO score for these borrowers was 741, compared to a 733 score for all home loan borrowers. The table below shows the top five states in which MI was used by borrowers to purchase or refinance homes in 2018.
Number of Borrowers Helped with Private MI
In addition to helping borrowers qualify for low down payment mortgages, mortgage insurance also reduces the federal government's exposure to mortgage credit risk, the report says. Private mortgage insurance serves as credit protection against mortgage credit risk in the event of a default. Since the 2008 financial crisis mortgage insurance has paid over $50 billion in claims.
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