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These days, not much. Ideally, you would have enough cash for a 20% down payment,
closing costs equal to about 3% to 5% of the purchase price, and enough left over
to cover two or three months of monthly housing expenses. That gives you a big chunk
of equity in your house upfront and makes the lender happy -- something that usually
translates into a better deal. The trouble is, coming up with that much cash can
be all but impossible for many first-time buyers. After all, we're talking $40,000
on a $150,000 loan or $70,000 on a $250,000 mortgage.
The good news is that lenders over the last couple of years have become increasingly
willing to finance as much as 95% or even 97% of a home. The reason: They can now
unload the risk of such loans onto somebody else. To limit their exposure, many
lenders regularly sell their loans to the Federal National Mortgage Association
(Fannie Mae), which then bundles them into securities which are eventually sold
to investors. It used to be that Fannie Mae only would buy loans for 80% financing.
But it recently standardized the lending criteria for 97% financing and will now
buy these loans, making lenders much more willing to provide them to you. It's now
common for first-time buyers to put down only 5%, or $7,500 on a $150,000 loan.
While this sounds enticing, remember that puny down payments have their price. First
of all, you start with very little equity in your home. Also, if you don't have
20% to put down, you'll probably have to ante up for mortgage insurance (which protects
the bank against default and can top $1,000 a year if you put 5% down on a $200,000
loan).
If you are buying in an urban area or have low to moderate income, look into programs
offered by your city or state that provide below-market loans with little or no
down payment required. If you're really cash-strapped, you can get 100% financing
by "piggy-backing" a second loan equal to 20% of the purchase price on top of your
80% loan. But that 20% second mortgage will come at a much higher rate.
Home Loan Information
- Receive multiple home loan offers and compare mortgage rates