Mortgage Help   Mortgage Rates Real Estate Credit Foreclosure Tax Mortgage Rates Mortgage Basics Chapter 1: How much house can you afford? Homeownership Should You Buy or Rent Summary   Chapter 2: Adjustable-rate mortgages ARM and a fixed-rate mortgage Fixed-rate mortgages Understanding the key elements Which type of lender is right for you? Other types of mortgages Subprime Summary   Chapter 3: Your credit score Down Payment How lenders set rates Low down payments Mortgage insurance Your mortgage payment Mortgage Points Summary   Chapter 4: The good faith estimate Inspection and Insurance Necessary paperwork for a buyer Other lender paperwork Paperwork and fees Prequalification and preapproval Special circumstances Summary   Chapter 5: Ten questions to ask Turned down for a mortgage Underwriting What lenders ask Summary   Chapter 6:  Understanding the closing process Escrow Summary   Chapter 7: When your mortgage is sold Avoiding foreclosure Paying ahead Payment changes Refinancing Removing mortgage insurance Summary Down Payment Coming up with a down payment to purchase a home is difficult, especially for first-time buyers and those with low incomes. Lenders recognize the struggle and are willing to underwrite mortgages with smaller down payments than were traditionally required years ago. Most mortgage lenders will require a cash down payment of 5, 10 or 20% of the purchase price of the home. Some lenders offer zero-down mortgages. If you are able to put down more than the required down payment, 30% for example, the lender may overlook credit problems or allow you to apply without disclosing your income. If you can't find 20% to put down on the mortgage, you will be required to pay for private mortgage insurance, also called PMI, to protect the lender against your default. The idea behind down payments is that the more cash you invest, the more interest you have in making the payments on time and paying off the mortgage. The more you put down, the less of a risk you are to the lender. You can lower your mortgage payment or purchase a more expensive house by putting more money down. How down payments work If you make $40,000 a year, you can afford a maximum monthly mortgage payment of $933. That is 28% of your gross income. Assuming your total monthly debt is less than $1,200 (36% of your gross income, the more money you put down, the more home you can buy. For example, a 30-year fixed-rate mortgage with a rate of 7.5% and a monthly payment of $933 equals a principal of $133,435.45. If you put 10% down, you can afford to buy a property worth $148,262. If you put 20% down, the house price would be $166,794. There are several calculators on the Internet that will help you determine how much house you can afford and the required down payment amount. If you are selling your home, you can apply the equity you receive as your down payment towards your next home. Otherwise, you need to be prepared to show that you have had your down payment in a bank account for at least 60 days. If you start saving now and give up the luxuries, before you know it, you could have enough saved up to put down on a home. You could borrow against your 401(k) retirement plan for your down payment. You will have to pay interest on the loan, but it may be worth it. You can borrow from your family for a down payment as well. You will need to sign a "gift letter" for the lender that shows that the down payment is a gift, not a loan. If you still aren't able to find enough money for a traditional down payment, don't worry. There are special mortgages and programs for first-time home buyers that will help you buy your dream home.