The down payment seems to be one of the most important factors in buying a home.  As it should be, because the more money you put down, the lower your total monthly mortgage payment will be.

A down payment should be determined by the following questions:

1.  How much can you afford?

Your down payment should NOT consist of all the money you have in your savings account.  Why?  Well, let's say the water heater happens to break down in the first year of buying the home.  That kind of break down can cost thousands of dollars!  It's something most people would never expect, but it's possible. 

You see, most people buy an existing home (especially a first time home buyer) and existing homes do have wear and tear just like anything else.  Eventually, something will break or tear, leading to a repair.  Sometimes it may only cost $10, but other times it may cost $5000.  So, keep a little money in that savings account in case of an emergency.  You will thank me later!

2.  Is the monthly payment or the down payment more important to me?

It's quite simple, the more of a down payment you have, the less your overall monthly payment will be.  The less of a down payment you have, the more your overall monthly payment will be.

Example in real numbers:

The purchase price is $200,000 and you decide that a down payment of 20% is something you can afford.  The principal and interest payment (not including the taxes and insurance) on a 30 year mortgage at 5.0% would be $858.91.  Now, assuming the same scenario, but the down payment is only 10%, the payment would be $966.28.  The difference in a monthly payment is $107.37.  Over 1 year that's $1288.44.  Over 5 years that's $6442.20!

The important part to keep in mind about that example is that the difference in monthly payments just saved you $6442.20 over the next 5 years, because the down payment is only 10%.  Now, the difference in down payment money is $10,000.  So, if you are looking to save the most money out of your pocket, then put a less of a down payment down.  As long as the monthly payment is affordable, you will always keep more money will less of a down payment.

3.  What is the minimum down payment lenders allow?

Right now, in today's lending environment, there are only 2 ways to obtain a mortgage with absolutely no money down.

1. VA Mortgage Loan - You can be eligible for this type of mortgage if you or your spouse is active in the military or is a veteran of the military.
2. Rural Housing Loan - You can be eligible for this type of mortgage if the home you are looking to buy is in a rural housing area.  The area is determined by the USDA.

If you don't qualify for a no down payment mortgage loan, then the next lowest down payment mortgage is a FHA mortgage loan.  FHA only requires a minimum of 3.5% for a down payment.  Yes, only 3.5% is required for a down payment with this mortgage program.  It has become the most popular program lately, because of it's low down payment, favorable interest rates, and you can still qualify will less than perfect credit.

These are the types of questions you should know the answers to before looking to buy a new home.  The more knowledge you have, the more comfortable you will be in making an offer on a home.