When you buy a home, there are several up-front costs you
should be aware of, particularly down payments and closing costs.
Down Payments
A down payment is usually between 3% and 20% of the total cost
of the home. The amount of the down payment depends on your credit
history, income, the cost of the home, and the type of mortgage
you choose. Some lenders also have loan options that allow for no
down payment at all.
If your down payment is less than 20%, you will need private
mortgage insurance (PMI). This is insurance you pay to protect the
bank if you don't repay your loan in full. PMI is added to your
closing and monthly mortgage costs. When you apply for a home
loan, many mortgages require you to also have at least two month's
worth of mortgage payments saved, called reserves. However, there
are mortgages that do not require reserves.
Most lenders want to know the source of your down payment and have
restrictions about how much can come from gifts from your
relatives. In most cases, these gifts will need to be documented.
Ask your lender for more information.
