Should I get the largest loan I can?

Yes, you should. The standard mortgage covers 80% of the cost of the home. However, you can get a mortgage for as much as 97.5% of cost. You may want a larger loan because you may not have enough cash. But even if you do have the cash, you don't want to tie it up in your house, since you won't be able to get it out if you need the money in a hurry. Also, if you're buying a home as an investment, a larger loan gives you more leverage. Your profits from appreciation will be a higher percentage of your equity. On the other hand, a larger loan will require higher monthly payments, and if your income declines, you may have difficulty meeting the payments.

What is mortgage insurance?

Mortgage lenders consider a loan for 80% of the value of the home the maximum amount of risk exposure they may undertake. They will, however, make loans for higher amounts if the loan is insured against borrower default. The Federal Housing Administration (FHA) offers mortgage insurance on loans below a specified dollar amount. Larger loans may be insured by private companies specializing in this service. Also, the Veterans Administration (VA) guarantees loans for eligible military veterans. The guarantee is not the same as insurance, but it has the effect of allowing the borrower to get a loan with a very small down payment.