The options for securing money to buy a home have become exceptionally varied, and in some cases, you may not need to pay a down payment at all to secure a loan. The conditions of such an arrangement can vary, and while this can be a great option for some home buyers, it may end up costing quite a bit of money for others. In most cases, financial institutions will require a down payment of at least 20% of the total loan amount in order to secure funding. Theoretically, the more money you can put down, the better, though this is not always the case.
No down payment loans are convenient for potential homeowners who cannot pay 20% of the home's cost up front. This is especially common in regions of the world where home prices are exceptionally high, though in the past, this type of transaction was exceptionally rare. As lenders have become more comfortable with the practice, however, it is offered more and more to home buyers with a solid credit history. The downside to the no down payment system is something called private mortgage insurance (PMI), which is essentially another payment the homeowner makes to the lender. The amount of the payment can vary; it is intended to protect the lender should you end up defaulting on the loan.
PMI is not tax deductible, and it can end up being quite expensive for some home buyers, so it may be best to put down a down payment of at least 20% of the total loan amount. Lenders often prefer this practice because it ensures you, the homeowner, have equity in the home; in other words, some of your money is on the line should you default on the loan or if the home is destroyed for any reason. In some regions of the world, it will be possible to make a down payment of less than 20%, but you will more than likely be subject to PMI.
There are some advantages to paying more than 20% as well. The more money you put down up front, the lower your monthly payments will be. This will allow you more financial flexibility for saving, renovation projects, or other purchases you may want to make or need to make. The downside is, of course, that you will have to pay more money at the time of purchase, which may not be possible for some home buyers.
