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Is There An Alternative to a 20% Deposit?

By Allison Halliday | April 25, 2014

Raising a 20% down payment is pretty much considered to be standard when trying to buy a home, but with rising prices this is becoming an increasingly difficult thing to do. According to figures from the Census Bureau the average home in the US cost $311,400 in December last year, and a 20% deposit would be pretty eye watering.

© mrtimmi -

© mrtimmi -

However an article on points out that it's not always necessary to do so, and that a down payment of less than 20% is okay with most banks. The reason this figure is quoted so often is because of the extra insurance required when you put down less. Usually home buyers will have to take out private mortgage insurance, or will have to have a government insurance that is backed by the Federal Housing Administration. This insurance protects the lender in case the buyer can't make their payments and the property ends up in foreclosure. In spite of this these insurances don't last forever. As soon as the loan to ratio value reaches 80% the homeowner can ask the lender to cancel these insurances, and this becomes mandatory when the values reached 78%.

Private mortgage insurance can easily cost $200 a month on a home valued at $200,000, and of course many people will be paying much higher sums than this. There are other solutions, as there are various programs that help buyers purchase a home without putting down 20%. All these programs have various restrictions and qualification requirements, and it's best to deal with a knowledgeable mortgage banker who is able to guide buyers through the various pitfalls. Experts suggest talking to a mortgage banker first of all rather than trying to find a property and then secure financing.

Anyone wishing to buy home this year is best advised to try their own bank first of all, as there may be a better chance of getting a loan even without a huge down payment. Bankers are more willing to take the risk on someone they know a little more about, especially if their family has banked at the same institution.

The FHA also offers various mortgages that enable the buyer to put down as little as 3.5%. Other conventional lenders will allow additional financing to help bridge the gap between the down payment and the mortgage loan. However these types of mortgages do tend to be much more expensive due to mortgage insurance or the cost of an additional loan.

Allison Halliday is a Realty Biz News contributing writer. She handles International Real Estate and is a seasoned blogger.
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