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You might wonder why lenders insist that you pour thousands of dollars of your own money into a home. After all, lenders make money from loans, so you'd think they'd want to give you as much cash as possible.
That's true, but lenders also need assurance that you'll repay the loan. To get that implied promise, they require you to have a personal financial stake in your house. From the lender's point of view, when you pay for part of the house with a pile of your own hard-earned cash, you're much more likely to pay back the loan. It shows you're committed to buying - and paying for - your new home.
As an extension of that assumption, the more money you invest in a down payment, the better you look to a lender. That's why borrowers who make higher down payments (20 percent or more) can get better terms and avoid paying private mortgage insurance.
Even if you don't fork over 20 percent of your home's purchase price, you need a down payment in almost all cases. Few lenders hand over the entire purchase price of a home. In the wake of the subprime mortgage crisis of the late 2000s, the once-ubiquitous no-money-down mortgage has gone the way of the dinosaurs. Today, lenders expect borrowers to reach deep into their pockets and come up with a sizable down payment.
