Purchasing a piece of property can be confusing. Not knowing how much cash is required up front is what keeps many people renting for years. The truth is, as long as the borrower's credit is good, a down payment of between 5-10% of the purchase price is all that is required. As is the case with proposed interest rates, the borrower's credit level can also pose an obstacle in home ownership. The worse the credit level, the more cash a borrower will have to bring in as a down payment.

With conventional financing, another factor is added. If the borrower is putting down less than 20% of the purchase price, mortgage insurance will be required. This is special insurance for the lender which insures THEM for monies lent over 80% of the purchase price. For example, if you are purchasing a home for $100,000.00 and putting down $10,000, this would mean the lender is at 90% loan to value. In today's conventional lending, this makes the lender very nervous. The lender will require mortgage insurance on the $10,000 which represents the difference between 90 and 80% loan to value.

This sounds fine and does not affect the borrower, wrong. In monthly payments, the borrower will pay for this insurance for the conventional lender. If a borrower is able to put down 20% or more, mortgage insurance is not required and the borrower is saved this added expense.

If a borrower is in a poor credit situation, where they have been late on previous payments or another bad credit situation, as a borrower, it is almost guaranteed a higher down payment will be required. Sometimes up to 30% of the purchase price. Yet another reason to pay your bills on time.

One final note, there is a limit to the amount of money a person should put down on a home. Granted, a good goal is to have a home free and clear, but in today's tax environment, a person's greatest tax deduction comes from deducting interest paid on a mortgage, as long as it is the person's primary residence. With that in mind, the down payment can vary, depending upon the borrower's comfort level.