Can You Get Mortgages With Less Than 20% Down?

Qualifying for Mortgages

The down payment serves as an act of good faith on behalf of the borrower. It shows that the borrower is fully intending to purchase the house and pay off the mortgage. This does not mean that a specific down payment amount is required. Borrowers choose their own down payment percentages when they are applying for loans or creating their offer to purchase the house. Lenders sometimes make different choices based on how low or high the down payment is, but borrowers can successfully take out a loan with a variety of different percentages, including 30, 20, 15 or 10. In some cases, down payment percentages can go even lower.

FHA stands for Federal Housing Administration, a branch of the federal government that has subsidized loans for lenders. FHA loans are mortgages specifically designed to make purchasing a home easier for buyers who do not have a large amount of money saved up for a down payment. They allow the buyer to offer as little as 3.5 percent of the purchase price of the house and still qualify for the loan.

Mortgage insurance is a specific type of insurance that a borrower pays for, but that pays the lender if the borrower becomes unable to make loan payments due to problems with income or emergencies. FHA loans required a type of public mortgage insurance, but if borrowers are trying to qualify for a conventional mortgage, lenders may require that they purchase private mortgage insurance, the same type of policy offered by a private insurer. This is a common practice for lenders that agree to qualify down payments under 20 percent. Mortgage insurance payments typically vary between $30 and $50 per month.

As a rule of thumb, buyers should try to make as large of a down payment as they can within their financial capabilities. Lenders prefer to see large down payments and will often offer lower interest rates for higher deposits. The money that a buyer must pay for a higher down payment percentage can be saved several times over by qualifying for a lower rate, so it is in the buyer's best interest to offer a high down payment when applying for a loan. Higher percentages also make it more likely that a seller will accept the offer.