Are you planning for a new house? Most of the lenders would require you to make at least 20% down payment to get approval and you can avoid paying private mortgage insurance in the process. However, it is not easier to scrape together even 10% of the overall transaction cost.

Is it a good idea to opt for a mortgage that doesn’t require 20% down payment? Well, the answer is quite subjective depending upon your current financial circumstances but for a majority of people, it is an expensive choice.

Fannie Mae and Freddie Mac are offering low down payment loans starting in 2015. If you have a good credit score and you can document well, there is a loan available for you with 3.5% down payment. In case, you credit score is not up to the mark, you can still opt for a FHA loan, which has comparatively easier credit score requirements.

If you decide to choose a mortgage with less than 20% down payment:

• You will require private mortgage insurance, which is likely to cost between 0.15 percent and 2.5 percent of the mortgage amount
• You will pay higher interest rates for the loan

Keep in mind that higher interest rates and private mortgage insurance costs could add up in the longer run.

You might end up facing more competition, especially in sellers’ markets, and sellers prefer offers with best financing terms. Full cash offers receive priority followed by cash offers ranked according to the down payment. It doesn’t mean that you cannot put up an equally competitive offer. Consult your real estate agent about the best ways to overcome this shortcoming.

Real estate transaction is likely to be the biggest transaction of your life and it will serve you best to start with a 20% down payment. If you are still interested in a lower down payment mortgage, you can consult local lenders and real estate associations for guidance.