For borrowers receiving advice from their parents, it’s probable they are hearing about the benefits of making a 20 percent down payment to purchase a home. The conventional wisdom says that making a large down payment is an effective strategy for decreasing risk since it reduces the size of the monthly payment.
Conventional wisdom also states that the road to hell is paved with good intentions. No offense to anyone who operates under the notion that a 20 percent down payment is the best way to finance a home, but good intentions can sometimes result in misguided advice, based on a lack of knowledge about the facts.
Of course, the only way it was possible to purchase a home for many years was to put down 20 percent. That is simply not true anymore. There are many loan products available now that allow for a down payment that is much smaller than 20 percent:
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