How much of a down payment will I need?
Quite probably, less than you think. Many first-time buyers are surprised to learn there is no fixed answer to this question. Usually, down payments range anywhere from three to twenty percent of the property’s value.
There are also down payment assistance charities that can help you. And, of course, if you are selling a home, the equity you've built up can be applied to your down payment.
Special loan programs are available to low-moderate income borrowers that require no down payment and permit the seller to pay closing costs. Additionally, borrowers that don't qualify under the low-moderate income guidelines may quailfy by purchasing a home in a low-moderate income neighborhood.
The amount of down payment will vary based on your overall credit history and which loan programs available to you. Loan programs are available that require no down payment but will cost you a premium to obtain. This premium can come in the form of higher interest rates or costly Private Mortgage Insurance(PMI).
There are still mortgage programs that require no down payment or down payments as little as 3% of purchase price. Mortgages with less money down will have higher PMI payments but the good news is that PMI is now tax deductible.
As a rule of thumb, the larger the down payment, the lower your overall housing expenses will be, because lenders see you as less of a risk as a borrower and charge you lower rates and less mortgage insurance. A down payment of 20% or more generally eliminates the requirement to use a high-rate second mortgage or home equity line of credit to purchase a home, and in many cases even removes mortgage insurance premiums from your monthly mortgage payment from the very beginnning.
One program available with more flexability is the My Community Mortgage Porgram offered by Fannie Mae. This program allows you to borrow up to 100% of the purchase price.
If possible, try to include "seller concessions", which are funds from the sale that the owner contributes toward the buyers fixed closing costs. This maximizes the value of your down payment so that 100% of it can be applied to home equity rather than paying loan fees.