Down Payment

Saving enough money for a down payment is sometimes difficult, particularly for first-time home buyers. The traditional amount required for a down payment is 20 percent of the home's purchase price. Lenders are generally willing to accept less than the 20 percent if the borrower takes out private mortgage insurance (PMI). This insurance protects the lender in case the borrower defaults on the loan. Creative financing is available from many lending institutions that offer 100 percent financing. No down payment makes it possible for a wider swath of people to enjoy the benefits of home ownership. However, there are special requirements to qualify for this type of financing. While these requirements may vary between different lending institutions, one common designation is that the property must be occupied by the owner. Another requirement for 100 percent loan qualification is a debt ratio of 45 or less.While zero down or a low down payment may sound like a good deal, it is not always the best option. The advantage to making a larger down payment is the rapid buildup of equity. A 20 percent or better down payment gives a strong base for rapid accumulation of equity, and saves you a considerable amount on interest over the course of the loan.If it is impossible to put any money down on the purchase of a home, there is a way to catch up on the equity buildup. Set up the monthly payments to be paid every two weeks. This will add a payment every year, thus reducing the principal more quickly than paying the monthly premium. Another way is to add an extra $50 or $100 to the monthly mortgage payment. Following either payment schedule will take years off a 30-year mortgage.