The old standard required for a Down Payment by most lenders used to be 20% of the purchase price. Now with the help of Primary Mortgage Insurance or PMI (Insurance which guarantees the lender loan repayment if the mortgage is defaulted upon), individuals are able to qualify for a mortgage with as little as nothing down. It goes without saying that the more cash that is put down for a Down Payment the lower the monthly mortgage payments will be, however, unless mortgage interest rates are high, individuals fortunate enough to have more than 20% available in cash for a Down Payment should consider the investment of the additional cash in something with a better rate of return than the interest that may be paid on their mortgage.

Individuals who have some cash available for a down payment but not all of the 20% required to avoid Private Mortgage Insurance should discuss seller credit with their realtor. Through negotiations with the seller, the purchaser can arrange for the seller to apply a “gift” credit at settlement, which will be applied to the down payment. The seller covers this gift by increasing the selling price of the home. This practice, although sounding a bit shady, is allowed by many lenders up to a fixed capped percentage of the total mortgage loan.

Return to Mortgage Translator →