The home is likely the largest financial investment you'll ever make. One of the biggest components of that, initially, is the down payment.
"A down payment is a percentage of money based on the purchase price that a buyer has to put down. If a home is $100,000 and the down payment is 5 percent, the buyer has to bring $5,000 of their own money and the bank will finance the other 95 percent," said Phil Reece, Homestead Funding Mortgage sales manager.
There are certain sources you can and cannot get your down payment from.
"There are allowable sources of down payment money and non-allowable. You cannot borrow money, you can't use it from a credit card, you can't get a line advance. You have to bring your own savings or your own retirement funds or even a gift from family," said Reece.
While putting down more money is optimal, for some mortgages you can put down very little.
"People think the amount of money you need to put down minimally is 10 or even 20 percent. Oddly enough, you can't be any different from those figures. The minimum down for most buyers is somewhere around 3 1/2. There are loans at 0 percent financing, one of which is VA financing for military veterans. And another is called USDA which is for rural housing," said Reece.
If you can't put down at least 20 percent on your purchase of a home, you'll end up having to pay private mortgage insurance, which should be factored into your finances come purchase time.
"Down payment and mortgage insurance go hand in hand. In the conventional world, there are huge differences in the monthly payment. So, if somebody is putting down 5 percent conventionally and they can get to 10 percent or 15 percent, each five percent increment will give them a lower PMI payment per month. When they get to 20 percent down they can remove PMI entirely," said Reece.
If you do end up borrowing money from your retirement, keep in mind you'll have to pay that back eventually and the house will have to be owner occupied.