The down payment presents the biggest obstacle
to homeownership for most buyers, especially first-time buyers and
those in lower income brackets. Fortunately for those people, lenders
have become more willing to underwrite mortgages with small down
Most mortgage lenders require a cash down payment
of 5 percent, 10 percent or 20 percent of the sale price. Some lenders
have zero-down mortgage programs. If you can put down more than
your lender requires, say 25 percent to 30 percent, your lender
may be willing to overlook past credit blemishes, approve your loan
without verifying your income or both. If you come up short on the
down payment, less than 20 percent of the buying price, you may
have to obtain private mortgage insurance, or PMI, to protect the
lender before your loan is approved.
You can often lower your mortgage payment or afford
a more expensive house by putting more money down.
Lowdown on down payments
Say you make $40,000 a year. Your maximum monthly mortgage payment
(28 percent of gross income) would be $933. Assuming your total
monthly debt is no more than $1,200 (36 percent of gross income),
the bigger the down payment, the more expensive the house you can
For instance, say the monthly mortgage payment of
$933 has an interest rate of 7.5 percent. In a 30-year fixed-rate
mortgage, that monthly payment covers a total principal of $133,435.45.
With 10 percent down, that mortgage would cover a house worth $148,262.
With 20 percent down, the house price would be $166,794.
Say you want to keep the monthly payment to $1,060.
How large of a mortgage can you get? The charts below consider the
key factors of interest rates, down payment amount and the length
of mortgage term.