How much down payment does a first-time buyer need?

Q: I am looking to buy a house for the first time and I want to know what to plan for, and I know lenders are tight these days. How big a down payment should I expect to have to make?

A: Low down payments are not as common as they were a few years ago, but they are hardly an endangered species. What you need as a down payment on a mortgage depends somewhat on your circumstances, and also on what you want to accomplish.

While mortgage lenders are not as welcoming as they were during the last decade's housing boom, current mortgage rates remain very low, and low down payments are common enough to make this a decent market for qualified first-time buyers.

The National Association of Realtors reports that as of mid-2014, 66 percent of first-time home buyers were making down payments of 6 percent or less. Back in 2009, 74 percent of first-time home buyers were making down payments of 6 percent or less, so low down payments are somewhat less common than they used to be. Even so, with nearly two-thirds of first-time home buyers still in this category, low down payments remain the norm.

The catch is that this partly depends on your credit history. Lenders have gotten much more cautious after being burned by the sub-prime crisis, so if there are some bad marks on your credit, you may well be facing a down payment in the 20 percent range -- if you can get approved for a mortgage at all.

While some buyers are forced by their credit histories to make larger down payments, others actually choose to put more money into the house up front. Why? For one thing, low-down-payment loans for first-time buyers usually come via programs like FHA mortgages that require the borrower to pay mortgage insurance, and the higher the loan-to-value ratio, the bigger the mortgage insurance premium (MIP). A bigger down payment lowers the ratio of the loan to the value of the property, and thus by making a bigger down payment with good credit, you can save money on the MIP.

With current mortgage rates being so low, there is one argument to be made against a larger down payment, however. If it will take you a long time to save for a bigger down payment, you might miss out on those low mortgage rates. So, if you have the money handy, a larger down payment may make sense. If you are starting saving from scratch though, you might want to opt for a smaller one that will allow you to get a loan sooner.

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