So that you are not disappointed when it comes time to buy your home, you need to be well-aware, in advance, how much money will be required for a down payment. You need to know how much will be required to cover settlement costs, also.

The ideal down payment for a home is 20% of the purchase price. This is preferable among lenders because it protects them somewhat from default. If a buyer only puts down 10% on a home, and the value of that home decreases by 5%, if the buyer defaults on that loan, the lender will end up losing  a substantial  amount of money after paying for the expenses of the subsequent sale on the home. Thus, 20% of the selling price give lenders a cushion to protect their interests.

If your down payment is going to be less than 20%, you will be required by your lender to obtain private mortgage insurance (PMI). PMI increases your loan expenditure by several hundred dollars per year, but it protects your lender if you default on the loan. PMI is not a permanent expense, however. Once you achieve at least 20% equity in your home, the PMI can be removed following an appraisal (at your cost) to demonstrate that the 20% equity requirement has been attained. Another disadvantage of placing less than 20% down on your home is that you will likely face higher up-front fees and interest rates.

While you are shopping for homes, paying off debts, and waiting to find the perfect house, you will want to consider investing the money that you have set aside for your down payment. What type of investment you choose should be directly related to how soon you need the money back. It's best not to place your down payment funds into a risky investment, however tempting that might seem. Your best bet is to place the funds in a money market mutual fund, where your principal will not be at risk.

Money market funds are advantageous because they offer check-writing, tax-free yields, and electronic funds exchanges with other banks.

If you are just starting to save for your down payment, that 20% figure might seem to be in the far-off distance. Do not be discouraged, though. By boosting the amount you're saving by only a couple hundred dollars per month, you can achieve your down payment goal in a fraction of the time you originally anticipated.

You might also think about setting your goals toward a less-expensive house. The down payment money you've accrued will comprise a much larger portion of the selling price. Another option is to investigate low-down payment programs. If your credit is good, some lenders will qualify you for a loan with as little as 3 to 10% down. It is also possible to obtain assistance from the seller of the property you are looking to buy. If a seller is eager to close the transaction and has the funds available, they might be able to assist with financing in the way of a short-term loan.