Do I Have A Down Payment?

A down payment is money you pay up front toward the house. The more cash you pay as a down payment, the less you will have to pay each month on the mortgage. Typically, a conventional lender would like to have 20% of the purchase price as a down payment.

In many cases, involving an excellent credit history and sufficient income, lenders will agree to a 10% down payment. This may give you more cash for other moving expenses, but it will also increase your monthly mortgage payments. Some lenders will even lend up to 95% of the home's value to those with exceedingly good credit, income and a cash reserve after closing.

Loans through the Federal Housing Administration (FHA) or Veterans Administration (VA) carry very attractive down payment requirements of 5% or less. There is usually a maximum on the amount of money you can borrow with these types of loans, and VA loans are only available to veterans. FHA and VA loans are available at competitive interest rates. An additional benefit is that the seller may pay part of the points. In addition, when the time comes to sell, the next buyer may be able to assume the loan, subject to certain conditions.

If permissible, secondary financing may be used as an alternative way to finance your new home. This means that the seller may hold a second mortgage for 10% of the purchase price, while the buyer puts 10% cash down.

Typically, conventional lenders are willing to accept a lower down payment if private mortgage insurance (PMI) is secured. PMI protects the lender in case of default on the loan. It will cost more, but it can reduce your down payment to 10%.