ABA Family Legal Guide

Buying and Selling a Home

Financing a Home Purchase

The Basics

How much do I need for a down payment?

In today's market, it may be possible to buy a home with little or no down payment. For example, some people may qualify for special government-insured loans offered through the Federal Housing Administration or the Veterans Administration (VA). You can learn more about these programs at www.hud.gov/faqs/faqbuying.cfm and www.homeloans.va.gov. Some private lenders also offer loans that require little or no down payment. Finally, it may be possible to minimize the down payment by structuring the loan as two loans, as discussed on pages 106-107.

Generally, however, unless you can qualify for a special loan or creatively structure the financing, you will need a down payment equal to 20 percent of the purchase price to avoid paying the extra cost of private mortgage insurance (PMI). With less than a 20 percent down payment, banking regulations require the buyer to carry PMI. This insures the lender against nonpayment of the difference between the customary down payment and the down payment actually paid. The charge for PMI may be high, although the amount may vary as the loan ages. It is a good idea to refinance any loan that requires PMI as soon as feasible to avoid these extra charges.