A down payment is usually 20 percent of the purchase price of the property. If it's less, most banks require you to buy private mortgage insurance. PMI typically adds several hundred dollars to the cost of the loan, but you won't need PMI when you can prove that you have at least 20 percent equity in the property.

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Equity is the value of the home minus the outstanding loan balance. But to remove the PMI, most lenders require that you obtain -- and pay for -- an appraisal.  

Paying with gift money

An estimated one-third of first-time buyers purchase their home with a loan or a money gift from their parents. Lenders will ask for a gift letter stating that no repayment of the gift is expected. In addition to the letter, a lender can ask for two or three months' worth of statements for the account where the down payment funds are located. If the money was recently placed into that account, the lender may ask where it came from and request verification of that source as well.

Gifts -- with the proper documentation -- can be from relatives, friends, an employer, church, municipality, or nonprofit organization. Lenders often have stricter restrictions on gifts from friends and relatives other than parents. Also, if you put less than 20 percent down, some lenders may require that a portion of the down payment be your own cash, not a gift. If you want to use a gift as part of your down payment, check with individual lenders to learn the restrictions of specific private or government-insured mortgage programs.

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