There are several types of mortgage loans you can get to buy a house, and there are various down payment amounts with each type. Simply put, the more money you put down, the lower your mortgage payment. And the larger the down payment, the lower your interest rate will be.
Down payments range from 3% - 20%. You may see ads that say you can buy a house for no money down. In the early 2000's, it was fairly easy to find 0% down loans. With changes in the economy, the increase in the number of foreclosures, and the sub-prime lending crisis, these no cost loans are few and far between, unless you are a military veteran with good credit.
These changes have also made it more difficult for anyone with poor credit to qualify for a loan to buy a house. With less than stellar credit, expect to pay higher interest rates. And if you put anything less than 20% down, you will be required to buy Private Mortgage Insurance that can amount to quite a bit of money.
The least you should ever put down when you buy a house is 5%. This tells the bank you are in a better position to be able to make your mortgage payments each month. Some people are tempted to borrow money from relatives for the down payment when they buy a house. Most banks require that your down payment comes from your own money. Even if your family gives you a gift of money for a down payment to buy a house, the bank is likely to turn you down. This is because they won't have confidence that you will be able to make the payments. FHA loans make exceptions to this rule.
Is it advisable to put more than 20% down when you buy a house? It will lower your interest rate and your mortgage payment each month. But - make sure it does not strap you for cash if you have an emergency or want to make a big purchase later. Money is hard to get out of a house. You will either have to sell, or take on a second mortgage which can be costly and will extend the time it takes to pay off your mortgage. Remember also that closing costs will be from 3-5% of the purchase price of the house.
When you look for a mortgage loan to buy a house, shop around for the best deal, but always try to keep the interest rate and monthly payments within an affordable range, and have enough cash leftover to pay for living expenses.
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