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Down Payment Dilemma: How Do You Know How Much To Put...

Even for those who have decent credit and make good money, the down payment is often the great homeownership killer. For many others, who do have enough money set aside to make a substantial down payment, the question is: how much? Conventional wisdom—not to mention most of the banks and a good portion of homebuying and financial experts—will tell you that 20 percent is the standard bearer when it comes to down payments. But is it really necessary to put 20 percent down? The short answer is: no. It's not, of course—"Mortgage insurance protects the lender in case you can't make your payments and the house is foreclosed on," said U.S. News—but that money can make a significant difference for those who are stretching to buy a home. Still, when your only option to buy is a low down payment, which can mean an FHA loan or one of the new low down payment loans from Freddie Mac and Fannie Mae—"At the end of 2014, the two government-backed companies announced plans to slash down payments from 5% to 3%," said CNN—PMI might literally be a small price to pay. When to make a substantial down payment When you're looking to keep your monthly payment as low as possible and have cash to spare When you just can't fathom paying PMI When your goal is to buy a forever home and own it free and clear When you are approaching retirement age and can envision a reverse mortgage sometime down the line When you want to buy your house and pay it off as quickly as possible When the rate is lower with a higher down payment. "The more you put down, the better position you are in for negotiating a lower interest rate with your lender," said Credit.com. When to go low When you don't have the funds for a higher down payment and can't earn or borrow them quickly enough When the rate on your FHA or Fannie or Freddie loan is comparable to that you'd get with a higher down payment When you need to escape a high-rent situation and the monthly payment on a house is lower than what you're currently paying, even with the PMI factored in When you're confident your home will appreciate quickly, allowing you to refinance and get rid of PMI quickly When your investments can't be touched without a penalty or are returning better than the interest rate you'll get on your home If you have something better to do with the money.