Your Home Mortgage Down Payment Options

   

Al Zan - 11/12/08

Most people hope one day to own a home of their own. But for some aspiring home buyers, pulling together the "necessary to qualify" 20 percent home mortgage down payment can be more than a little difficult. For borrowers who are concerned about having a smaller down payment there are some mortgage options to consider. Just as with any aspect of a home mortgage, however, there are upsides and downsides to each of these options. And depending on the health of the credit markets at the time you are looking for a loan, lenders may be more or less willing to be flexible with the terms of the mortgage.

PMI (Private Mortgage Insurance)

In general, lenders prefer for potential buyers to put a 20 percent or higher down payment on a home in order to get the best terms for their mortgage. If, however, you cannot make such a large down payment, a lender may require that you obtain PMI, or Private Mortgage Insurance. If you find yourself unable to pay your mortgage, PMI protects the lender from losing money.

In general, PMI will cost around half of a percent of the price of the property you are purchasing. This means that, if you must purchase Private Mortgage Insurance, you will pay more for your home mortgage than you would without PMI. Happily, after you have built up a sufficient amount of equity in your home (20 to 22 percent), you can request to cancel the Private Mortgage Insurance.

Similar to this arrangement is an FHA loan, which is a loan insured by the government. If you get an FHA loan, it is possible to qualify for a home mortgage even if you have only three percent or more for a down payment. Because FHA loans are insured by the government there are specific criteria for qualification that can vary by county. Check with your loan officer or mortgage broker to see if you are eligible.

80, 10, 10 Home Mortgages

For those want to avoid the expense of PMI, there is another option. This is called an 80/10/10 home mortgage. With this option, you will use a second home mortgage to finance part of the down payment. 80/10/10 works more or less like this: your first, larger mortgage will cover 80 percent of the cost of your home. You will take out a second mortgage to pay a down payment of 10 percent. The rest of the down payment, another 10 percent, you will need to pay on your own.

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Article Category: Money and Business
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