How to Calculate the Down Payment for a Home

The down payment, or amount of cash you’ll have to pay toward the actual purchase of a home, is determined by the lender as a percentage of the value of the house.

Steps:

1. Pick up a homes guide from any real estate agent. These are also sometimes available at your local bank, supermarket or newsstand.
2. Look through the guide and select a few homes that you like, being reasonable in your selections.
3. Know that on most standard loans, lenders require that 20 percent of the value of the home be paid up front.
4. Multiply the price of the house you’ve selected by 0.20. This amount is equal to the 20 percent you’ll need to put down on the house.

Tips:

• If the amount you’ve calculated is out of reach, perhaps you need to set your sights a little lower and look at a more modestly priced home.
• If you’re a first-time home buyer, ask your lender if there are special loan programs through the federal, state or municipal government. In some instances, these programs require a lower down payment.
• Ask your lender if the lending company offers any mortgage programs that require a lower down payment. Most lenders have such programs, but they’ll require purchasing private mortgage insurance (PMI). Also, expect to pay a higher interest rate on the loan if you offer a lower down payment.

Warnings:

PMI costs will be added to your mortgage payment. Be certain to find out when you’ll have enough equity in your home to eliminate this payment. Lenders will keep collecting if you keep paying it.