Which mortgage type typically requires a larger down payment?

A conventional mortgage typically requires a larger down payment compared to other types of loans like FHA loans, VA loans, and adjustable-rate mortgages. The standard down payment requirement for a conventional loan can vary, but it is commonly at least 20% of the home's purchase price to avoid private mortgage insurance (PMI). This higher down payment threshold is designed to mitigate risk for lenders, as it reflects the borrower’s investment in the property and can indicate a stronger financial position.

In contrast, FHA loans allow for lower down payments, often as low as 3.5%, making them accessible for first-time homebuyers or those with lower credit scores. VA loans, granted to eligible veterans and active-duty service members, may not require a down payment at all, providing significant advantages for qualifying borrowers. Adjustable-rate mortgages typically follow the same down payment guidelines as conventional loans, but they may vary depending on the lender.

So, the requirement for a larger down payment associated with conventional mortgages is firmly rooted in lender risk assessment policies and borrower qualifications. This helps maintain the stability of the mortgage market by encouraging responsible lending practices.