The traditional down-payment amount is 20% of the purchase price. You'll also need to have enough money set aside for the closing costs associated with a home purchase - typically from 3-6% of the mortgage amount.

If you qualify for federally insured loan programs such as those offered by Fannie Mae or the Department of Veterans Affairs, you may need as little as 3-10% down. However, many of the loans that allow a lower down payment have an added expense: you will be required to purchase Private Mortgage Insurance (usually referred to as PMI ) that protects the lender in the event you default.

On the average, most homebuyers make down payments in the 5%-15% range, although your own personal situation may dictate more or less down payment. When you are factoring money for a down payment, remember to factor in closing costs, which will total in the 2-5% range, payable in cash at the time of closing.

If this should prove difficult, you may be able to negotiate with the seller to pay a portion of your closing costs. You may also be able to have the lender waive many or all of these costs - in return for a slightly higher interest rate.

What do lenders look for?

Here's a good rule of thumb you'll commonly hear from lenders: your monthly housing payment (including taxes and insurance) should not exceed 28% of your gross monthly income, and your total monthly debt payments (including car loans and credit card balances) should not exceed 36% of your gross monthly income.

If you're currently making rent payments that exceed this ratio yet have a good payment history, many lenders may allow you some flexibility. The same may apply if you're able to make a larger-than-normal down payment. In addition, certain federally insured mortgage programs let you spend a greater percentage of your monthly income on housing costs.

What's most important to remember is that home lenders make decisions on an individual basis. One lender may have a different ratio guideline than another; one may be more accommodating for low- and moderate-income families. So although the rule-of-thumb percentages are meaningful numbers to know, your own personal circumstances will help make the final determination.

How Much of a Down Payment Should You Make?

For most first-time home buyers, saving enough money for a down payment is the biggest hurdle to owning a little piece of paradise. Traditionally, lenders have required a down payment of at least 20% of the home's purchase price. However, lenders will now accept less than that if the borrower takes out private mortgage insurance.

Here are some areas used for down payments:

•  Personal Savings (including IRA's & 401(K)'s)

•  Proceeds from the sale of an asset (e.g. stocks, bonds, real estate)

•  Gift funds from a relative -the lender may require a 20% down payment if the source of the down payment is exclusively gift funds and the borrower does not have at least 5% from their personal funds to contribute.

•  Zero down payment or 100% financing - either a 1st mortgage exclusively or a combination of a 1st and 2nd mortgage (sometimes referred to as a piggyback mortgage).

•  Low down payment loans without mortgage insurance - what the industry refers to as an 80-10-10 (an 80% 1st mortgage, 10% 2nd mortgage & a 10% borrower down payment). Also available is an 80-15-5 (requiring an 80% 1st mortgage, 15% 2nd mortgage & a 5% borrower down payment).

•  Borrow your down payment utilizing assets that you already own. For example; borrow against your 401(K) - if your company plan allows it or borrow against your fully invested stock portfolio (avoiding a taxable sale and keeping your portfolio fully invested). You may also obtain a bridge loan against your yet unsold primary residence in order to purchase a new one.