What percentage of property value is typically covered by a first mortgage?

The most common percentage of property value that is typically covered by a first mortgage is generally around 80%. This is a standard practice in real estate financing, as lenders often prefer to finance up to this percentage of the property's appraised value or purchase price. The rationale behind this 80% threshold is rooted in risk management for lenders; it allows them to mitigate potential losses in the event of foreclosure.

Lenders usually require borrowers to come up with a down payment of at least 20%, which is why the first mortgage commonly covers 80% of the property's value. Financing up to this level also helps ensure that borrowers have some equity in the property from the outset, aligning their interests with those of the lender. This scenario encourages responsible lending and borrowing practices.

Hence, the choice representing 80% reflects industry norms regarding first mortgage financing and serves to ensure both lender security and borrower investment.