When deciding just how much to put down on a house, there are two sides to the equation to make this work out in an acceptable fashion for you. First, consider ALL the costs that come with the house. Only after you know all those can you then look at how to get the best mortgage deal based on how much cash you have available.

I have seen many borrowers get themselves into trouble looking to buy a house when they only planned for the down payment and not the extra factors such as taxes, insurance, points to pay to get a better interest rate and how much money in reserves the bank requires you to have left over after paying all these items. Good planning for these items will still leave you plenty for that new refrigerator and drapes! Hopefully these tips will put you in a spot where you can buy those other extras that some people get stuck in a spot not being able to afford.

Therefore, this article is split into the items that you need to prepare for and the best ways to use your avalable cash for a good mortgage deal. Although I have discussed the mortgage aspect first, you must determine what you truly have available before considering which mortgage is best for you.

Here are the questions you need to have the answer to in order to make an intelligent decision on how much to offer to put down on that new house. Do the math (or ask your mortgage professional to help!) and subtract all these things from your available cash to come up with what you really want to offer for a down payment.

What other costs will come with your loan?
What other costs are there to get you into the house?
How much do you need to have left over?

How much to Put Down for the Best Mortgage Deal
On the mortgage side of the equation, the more you put down, the better interest rate you will be able to secure. In today's mortgage world, there are a variety of choices from 0% to 20% down or more. There are even programs where you can borrow 103% or even 107% when that extra 3% or 7% is used to pay the costs for the house, truly getting you into a house for no money down.

In order to get the best deal you will need to put 20% down. This will help you to avoid mortgage insurance or taking a second mortgage at a higher interest rate to avoid the mortgage insurance. The best interest rates can still be secured with as little as 5% down (in some situations), but the extra costs of mortgage insurance may negate that good interest rate.

However, the value of owning a home versus renting vastly outweighs the cost of paying a higher interest rate or PMI for a while.

Here is an example. Let's say that you only have 10% down saved up to buy a $150,000 house. Her e is the advantage of buying the house now instead of waiting until you have saved the 20%.

You have to pay PMI of $60 per month for the house to get it now and the house is going up in value an average of 5%. In this case, you can request that PMI is removed in 2 years.

In those 2 years, the house value would go up $15,375 and 24 payments of PMI would cost you only $1,440. Doesn't it make sense to pay fourteen hundred to make fifteen thousand??

Now at 5% down, the PMI payments nearly double (read how to calculate PMI) but even if we look at a cost of $3,000 to make $15,000 this is still a great deal.

This is called leveraging your money. You may even have the 10% down saved and decide to put down only 5%, because you can do somehting better with the other 5%. Compare what it will cost you to keep that 5% and make an informed decision. In this example, keeping half the down payment or about $7,500 would cost you about $750 per year or 10% interest.

Investing that money is likely not going to make you more than 10%, but if that $7,500 can buy drapes or landscaping, the value may be well worth putting that money somewhere else.

20% or more down
If you have 20% down, you are probably not reading this article, but you need to understand that everything you read about rates, whether you see them on the internet or in the paper are always quoted based on that 20% down.

When you have at least 20% down, you have more buying power to get the best deal. You are the borrower who can look at the rates that are posted and actually get those rates.

There are also other advantages to having at least 20% down.
- There is no mortgage insurance required
- Lower Credit Scores can qualify for the best rates
- The banks are sometimes willing to overlook some blemishes on your credit report and loosen the guidelines just a little if you are on the borderline.

Less than 20% down
If you cannot put down the whole 20% down on the house, there are different ways to get yourself close to that very best deal. But, there is a price to pay for putting down less than 20% on your house.

First, do not expect to get that rate without having to pay something extra somewhere. The extra might be in a higher interest rate, paying points, taking a second mortgage with a higher rate on that portion, or paying PMI.

I do want to note that with at least 10% down and credit scores of 660 (sometimes as low as 620), you can still get the best rate on the 1st mortgage.

Rates really go up when there is less than 5% down
For the 97% loans and the 100% loans, rates really jump up, so be ready.

If there is anything you can do do get at least that 5% down, you will save quite a bit of money down the road. Read the example down below to get a handle on some different ways to help you make sure that you have that much.

As for PMI, do not be fooled that you got the best deal just because you were able to sign on for the best interest rate if you have to pay mortgage insurance in addition to that mortgage payment. as discussed above, there is a cost to putting down less that 20%.

Many borrowers miss a chance at saving money because they are so focused on that interest rate. There are other ways that involve not getting the best "interest rate" but actually end up giving you a lower payment than the borrower who only insists on interest rate alone. Learn about and compare the choices. Two great ways to save are with a piggyback loan, or Lender's Paid Mortgage Insurance.

Piggyback Loans
This may be in the form of a "piggyback" loan, where you take a first mortgage for 80% of the purchase price and a second mortgage plus your down payment to make up the other 20%. This will get you a better interest rate on the first mortgage and although there is a higher interest rate on the second mortgage, since that is only on a much smaller part of the loan, this can be a better choice than paying mortgage insurance (PMI) since the interest on the 2nd mortgage is deductible whereas the PMI is not.

These piggyback loans are also known as
80-10-10 loans (80% 1st mortgage, 10% 2nd mortgage and 10% down)
80-15-5 loans (80% 1st mortgage, 15% 2nd mortgage and 5% down) and
80-20 loans (80% 1st mortgage, 20% 2nd mortgage and 0% down)

80-20 loans are now available for those borrowers with less than perfect credit and while the interest rate is determined by your credit scores, this has made home ownership for almost every borrower possible.

Please read PMI vs Piggback Loans for a comparison of payments and a more in depth discussion of whether a combination of a 1st and 2nd mortgage or paying PMI makes more sense for you.

Lender's Paid Mortgage Insurance
Rather than you taking a second mortgage or paying mortgage insurance directly, there is now an option where you can have Lender's paid mortgage insurance, also known as LPMI.

In this situation, you will pay a higher interest rate in place of mortgage insurance and while the total payment is usually almost the same as you would pay with the mortgage plus PMI, your mortgage interest is now completely deductible and can result in quite a savings over paying PMI.

This is an option that many borrower's (and many mortgage people) are unaware of and not all lenders offer this option, but it is definitely an option you should explore when you are putting down less than 20%.

With LPMI, you only have a first mortgage and if you ever need to take a home equity loan that will be available to you. If you have a 1st and 2nd mortgage, there are only a few lenders who will give you a 3rd mortgage for a home equity loan and I guarantee that the 3rd mortgage will carry a very high interest rate.

On the downside for LPMI, if you keep this mortgage for the entire length of the loan you will be paying that higher interest rate long after the PMI would have been removed. While this can be many years down the road before this situation actually occurs, you should be aware of it. Remember though, most borrowers refinance their mortgage or sell their home and the percentage of people this would affect is fairly small.

A note on Paying Points
I strongly suggest that when you are buying a house you pay points on the mortgage. Remember that points are just pre-paid interest, not a fee as many envision points to be. Since points on buying a home are fully deductible the year that you buy the house there is no better time to be paying those points.

Always ask for the choices of paying points and what 1 or 1.5 or even 2 points will buy you. In many situations, less down and putting extra toward buying points may actually have you end up with the better deal. A lower interest rate will save you money for years to come and the time to ask for and look at your options is quite small compared to the amounts of money you can save.

Make sure to read the section on paying points in the Library for more detailed information. I have 7 different articles about ways to use points to your advantage and when you can deduct this the first year, paying points can result in big savings.