How much money do I have to put down to buy a house?
Typically, lenders require a down payment of 20 percent. However, several mortgage programs allow you to purchase a home with a much smaller down payment, such as Federal Housing Administration (FHA) mortgages and Veterans Administration (VA) mortgages (if you are a qualified veteran). In many cases, VA mortgages will not require a down payment at all, and FHA mortgages can require down payments of as little as 3 percent. If VA and FHA mortgages do not match your down payment needs, you may be able to obtain a conventional mortgage with a down payment of less than 20 percent with the additional cost of private mortgage insurance (PMI). Lenders generally require you to purchase PMI if you are borrowing more than 80 percent of the value of the home you are purchasing (i.e., your down payment is less than 20 percent). PMI guarantees that your lender will be paid if you default on your mortgage. Typically, monthly PMI premiums are $45 to $65 per $100,000 borrowed. The cost of PMI depends on several factors, such as the amount of your down payment, type of mortgage, and whether you pay premiums on a monthly basis or in a lump sum at closing. PMI premiums can significantly increase your monthly housing cost, but may be tax deductible (through 2010 only). If the idea of paying monthly PMI premiums does not appeal to you, consider asking if your lender is willing to increase your mortgage interest rate a quarter of a point rather than require PMI coverage. Your monthly payment will increase by roughly the same amount as the monthly insurance premium. Some lenders offer no down payment or 100 percent financing mortgage programs that do not require you to purchase PMI. However, you will generally pay higher interest rates and closing costs on these loans, and there may be additional qualification requirements.