Do I Need 20 Percent Down for a Mortgage?

Getting a mortgage with less than 20 percent down is possible.

Buying a home involves meeting a host of lender requirements, and many mortgage lenders require down payments. There are different types of loan programs, and the down payment requirement for each program varies. Twenty percent is the traditional down payment on a home loan. However, lenders are flexible and some require much less.

Benefits of a 20 Percent Down Payment

Putting down a large down payment on a property benefits property owners. A 20 percent down payment provides instant equity and results in a lower monthly payment. Plus, lenders charge private mortgage insurance or PMI when there's less than 20 percent equity in a home. This extra insurance protects lenders if a borrower defaults or loses the property to foreclosure. With a 20 percent down payment, lenders waive PMI, saving borrowers hundreds or more each month on their home loans.

Acquire an Adequate Down Payment

With home prices on the rise, it's becoming harder for home buyers to save 20 percent for a down payment. This type of down payment is easier to amass when borrowers have a previous property and sell the home to buy another. There's the option of using money from the sale as a down payment on a new home. Some home buyers also dip into 401k or other retirement accounts to acquire adequate funds for a down payment.

Lower Down Payment Mortgage

Fortunately, 20 percent down payments are not required. Typical down payments for mortgage loans range between 5 percent and 10 percent of the sale price. For example, mortgage loans backed by the Federal Housing Administration require only between 3.5 percent and 5 percent down. That's a minimum of $7,000 for a $200,000 mortgage loan. Active military personnel and veterans can take advantage of Veterans Affairs home loans and qualify for mortgage loans with no money down.

Bad Credit and Down Payments

Mortgage lenders are careful when approving home loan applications, and they tend to shy away from people with bad credit or no credit history. However, putting a 20 percent down payment on a house -- or more -- works to your advantage if you have credit issues. Lenders may approve your application when they otherwise wouldn't, and having a home loan on your credit file can help improve your credit score, provided you make timely payments.

References

• Bankrate.com: Down Payment
• Home Loan Learning Center: Qualifying for a Mortgage