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I talked to the mortgage agent at my current bank, and they gave me a pre-approval with a particular interest rate and minimum down payment percentage.

I am happy with the interest rate, but the minimum down payment seems high to me; it means homes that I could otherwise afford with a payment significantly less than what I'm currently paying in rent, are out of my range because I can not afford the down payment..

Is it worth contacting other lending institutions, or are the down payments offered to first time buyers pretty consistent?

My bank didn't say anything about a FHA loan. Is that something I should ask about?

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I am confused... Is it that the loan is limited to a higher range than you are wanting or is it that they want a certian percent down and you are unable to afford the higher range of homes because you can not put that much down? –  user4127 Jul 18 '12 at 16:31
    
The latter. Even though my income could easily justify buying a more expensive house, I'm constrained by my current cash on hand. –  levand Jul 18 '12 at 16:38
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What downpayment percent are they asking for? –  JoeTaxpayer Jul 18 '12 at 16:57
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Depending on where you are, minimum down payments are sometimes (effectictively) regulated. –  DJClayworth Jul 18 '12 at 17:18
    
There are lots of advantages to making more than the minimum down payment. If you are really stretching yourself to make a down payment you are very vulnerable to a decline in house prices. –  DJClayworth Jul 18 '12 at 17:19

3 Answers 3

up vote 3 down vote accepted

It's worthwhile to try and find a better minimum down-payment. When I bought my home, I got an FHA loan, which drastically reduced the minimum down-payment required (I think the minimum is 3% under FHA). Be aware that any down-payment percentage under 20% means that you'll have to pay for private mortgage insurance (PMI) as part of your monthly mortgage. Here's a good definition of it.

Part of the challenge you're experiencing may be that banks are only now exercising the due diligence with borrowers for mortgages that they should have been all along. I hope you're successful in finding the right payment. Getting a mortgage to reduce your spending on housing relative to rent is a wise move. In addition to fixing your monthly costs at a consistent level (unlike rent, which can rise for reasons you don't control), the mortgage interest deduction makes for a rather helpful tax benefit.

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+1 for banks are only now exercising the due diligence with borrowers for mortgages that they should have been all along. The days of the 3% loans are done for all but the most over qualified who are not likely to make use of it. –  user4127 Jul 18 '12 at 18:35

If you are putting down less than 20% expect to need to pay PMI.

When you first applied they should have described you a group of options ranging from minimal to 20% down. The monthly amounts would have varied based on PMI, down payment, and interest rate.

The maximum monthly payment for principal, interest, taxes, and insurance will determine the maximum loan you can get. The down payment determines the price of the house above the mortgage amount.

During the most recent real estate bubble, lenders created exotic mortgage options to cover buyers who didn't have cash for a down-payment; or not enough income for the principal and interest, or ways to sidestep PMI. Many of these options have disappeared or are harder to get.

You need to go back to the bank and get more information on your different options, or find a lender broker who will help you.

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When I first purchased my home six years ago, I was able to get into a Bank of America First Time Homebuyer program that required no down payment and no PMI. While I hope you find a lower initial payment, the banks have tightened their requirements so that buyers have "more skin in the game" so to speak. Exotic loan options coupled with the subprime mortgage crisis caused the housing bubble to burst. Now banks are being very selective about who they provide a mortgage. The other things you need to look at are interest rate and terms. Do you feel you will be in the home for the next 30 years? Have you considered a 15 year mortgage? Shop around. PMI used to have a bad connotation (at least it did when I bought my home six years ago), but I feel now that it would have been worthwhile for the banks and the economy in the long run had banks required buyers to utilize PMI.

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