How much will you need for a down payment?

In the past, lenders usually required a down payment of at least 20 percent of the purchase price of a home. Nowadays that’s no longer the case. Instead, the amount of your down payment will depend on a variety of factors, such as the amount of money you have saved for your home purchase, your current financial situation, and your feelings toward other investment options.

Can you get a low down payment mortgage?

Today, many lenders are approving loans with down payments as low as 3% to 5% . In addition, certain private and government entities have low down payment programs too.

FHA mortgages

You may be able to get a Federal Housing Administration (FHA) mortgage with a down payment of as little as 3.5 percent, making this mortgage very attractive to first-time home buyers.

VA mortgages

Department of Veterans Affairs (VA) mortgages are another low down payment option. VA mortgages are available to qualified veterans and their surviving spouses. VA mortgage terms are also generally very attractive, and in many cases, little or no down payment is required.

Conventional mortgages

You may be able to obtain a conventional mortgage with a down payment of less than 20 percent with the help of private mortgage insurance (PMI).

What about larger down payments?

If you have more than 20 percent to put down, you may still want to take the time to weigh your down payment options. With a larger down payment, you will reduce the amount of your mortgage and thus the amount of interest you will pay. Keep in mind, however, that there may be situations where you might not want to make a large down payment. For example, you may want to keep the money in your emergency cash reserve. Or, you may want to put the money toward other investment opportunities.

Tips for Accumulating a Down Payment

• Save - Look for ways to reduce your monthly expenditures to save toward a down-payment. You could enroll for an automatic savings plan at your bank to have a portion of your payroll automatically transferred into savings. Most people save a couple of years for their down payment.
• Borrow the down payment from your retirement plan - Check the provisions of your retirement plan. You can borrow funds from a 401(k) plan for a down payment or make a withdrawal from an Individual Retirement Account. Be sure you understand the tax consequences, repayment terms and/or possible early withdrawal penalties.
• Move - You may be able to save additional funds if you can move into less expensive housing.
• o Reduce other higher interest rate debt - Paying off credit cards will initially reduce your savings, but the money you will save from higher interest rates will pay-off in the long run.
• Make a deal with the seller - In some circumstances, it is appropriate to ask the seller to carry a second-mortgage to cover your down payment. Typically, you will pay a slightly higher rate for this second mortgage.
• Sell some investments
• Get a second job and save your earnings
• Skip a year’s vacation
• Gift from Family - Parents and other family members are often anxious to help children buy their first home and may have the means to give you a gift of money for a portion or all of your down payment.