Conventional Loan Requirements

• Conventional lenders typically require homeowners to pay 20 percent down on the purchase price of a home in order to get conventional financing, according to Lending Tree. If you can make this down payment, you get access to the best interest rate your credit score allows. Your ability to make this substantial down payment reduces the lender's risk to finance as it shows you are a serious buyer. With a 20 percent down payment, you also get more favorable terms and probably will not have to buy private mortgage insurance.
  
  

Government Loans

• Government-sponsored loan programs are nonconventional programs that have lower down payment requirements. FHA and VA programs are major insured loan programs that provide loans specifically intended to help bad credit borrowers or borrowers with limited down payment funds buy homes. They do so by providing borrowers access to loans with a 3.5 percent down payment requirement, moderate closing costs and easier credit qualifying. Approved lenders benefit because they can offer credit to more risky borrowers but the loans are insured to protect their investments.
  
  

Mortgage Insurance

• Mortgage insurance is protection for a mortgage lender in the event of an involuntary job loss that makes it impossible for you to keep up with mortgage payments. Conventional lenders typically require you to buy private mortgage insurance if you want to pay less than 20 percent down on a home. FHA loans require borrowers to carry FHA mortgage insurance to motivate lenders to offer these types of loans. The insurance premiums are typically added to your monthly mortgage payments.
  
  

Piggyback Mortgage

• Another possibility for a conventional mortgage loan that avoids both the 20 percent down payment upfront and mortgage insurance is what Lending Tree calls the piggyback mortgage. It is also known as an 80-10-10 mortgage because of the financing breakdown. With this type of mortgage, you pay 10 percent down, get a separate loan that covers your other 10 percent of the down payment, and then receive the 80 percent mortgage finance. If the lender allows this, you avoid the private mortgage insurance by covering the 20 percent down payment requirement.