Final answer:
Most home purchases are made with a 10 to 20% down payment alongside a mortgage. Lower down payments can be possible but usually require mortgage insurance, which increases the cost over time. A 20% down payment is typically preferred as it provides security for the lender and reduces the need for additional insurance.
Step-by-step explanation:
Most home purchases are made initially with a down payment and a mortgage. A general rule of thumb in home buying is to put down about 20% of the home's purchase price, which acts as a security for the lender to mitigate the risk of default. If a home costs $100,000, the typical down payment would be $20,000, with the remainder being financed through a mortgage.
However, not all buyers can afford a 20% down payment, leading to alternatives such as down payments as low as 0-3.5%. While low down payments make it easier for buyers to purchase a home, they often come with the requirement to purchase mortgage insurance. This insurance protects the lender in case the borrower defaults, but it also increases the overall cost of the mortgage over time.
In some unfortunate scenarios, like during the housing market crash, buyers who put down no payment found themselves in an upside-down situation, where the value of their homes dropped significantly below their mortgage debt, sometimes leading to bankruptcy.