At what Percentage Are Banks Requiring a Downpayment?

Home buyers face a couple issues when applying for a mortgage loan. A lender may reject the application because of the applicant's credit score, or a borrower may have little funds for the down payment. Down payments are required in nearly all mortgage loans, and the required amount varies by bank.

A down payment refers to the money a home buyer pays to the lender during the purchase process. Down payments are a percentage of the property's sale price, and forwarding this money to a lender lessens the amount financed. Reducing the financing amount helps lower the monthly payment on the mortgage. According to Bankrate.com, putting a large down payment on a property -- at least 25 percent or more -- may prompt a lender to excuse credit problems and approve the loan.

Banks that offer conventional mortgage loans typically require a 20 percent down payment. Provisions are in place to help borrowers who have less than that amount. Borrowers can put down a 5 or 10 percent down payment and then acquire private mortgage insurance or PMI. PMI protects the lender if a borrower doesn't make the mortgage payment, and premiums are paid monthly. Borrowers pay PMI until they achieve 20 percent equity in the home.

Low down payments are associated with FHA mortgage loans. The down payment required on this type of loan is 3.5 percent, which is the equivalent of $7,000 on a $200,000 loan. FHA mortgage loans are insured by the Federal Housing Administration. This type of loan assists people who don't qualify for a conventional loan because of low credit scores. FHA loans allow a borrower to have a credit score as low as 620.

Saving money for a down payment requires discipline and a plan. Decide how much you want to spend on a property, and build your savings to reach 20 percent of that figure. Put yearly tax returns and bonuses straight into your savings account, and cut down or eliminate certain expenditures, such as your yearly family vacation. Make other concessions to increase your personal savings, such as cooking more at home and eating out less.

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