How much money do you need for a down payment on a home?

One of the hardest aspects of fulfilling the dream of homeownership is saving for the down payment. How much money do you need to be able to purchase a home?

The amount of down payment depends on the price of the home and your lending source. Most lenders require a down payment of 20 percent of the home’s selling price. That’s possible for homeowners who are buying another home – they’ll be able to leverage their equity to make a down payment. For a first-time homeowner, this can be virtually impossible.

Several mortgage programs designed for first-time homeowners much smaller down payments. Agencies like the Federal Housing Administration (FHA) mortgages and Veterans Administration (VA) for veterans, can help you get into a home with les cash. In many cases, VA mortgages don’t require a down payment at all. FHA mortgages can require down payments of as little as 3 percent.

If your home doesn’t qualify for VA and FHA financing, , you may be able to qualify a conventional mortgage a smaller down payment if you buy private mortgage insurance (PMI). Lenders usually require PMI if you are borrowing more than 80 percent of the value of the home you are purchasing. (PMI covrs your lender if you default on the mortgage. Monthly PMI premiums are $45 to $65 for each $100,000 you borrow.

The PMI premium depends on several factors, such as the amount of down payment, mortgage type, and whether the premiums will be paid monthly or in a lump sum at closing.

If you don’t want to pay PMI premiums, ask your lender to consider increasing your interest rate a quarter of a point rather than require coverage. Your monthly payment will increase by roughly the same amount as the monthly insurance premium, but your interest will be tax deductible. PMI payments are not deductible.