Real Estate: What is a Down Payment?

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Real Estate: What is a Down Payment?

Real Estate: What is a Down Payment?

Discovering How Much You Really Need

Did you know? Real Estate Facts

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What is a Down Payment?

A down payment is the money paid upfront by a homebuyer when purchasing a property. It represents a portion of the total price, typically ranging from 3.5% to 20%, depending on the loan type and the buyer’s financial situation. It is a requirement when purchasing a home because it helps protect the lender from the risk of borrower default. By paying a down payment, the buyer is demonstrating their financial commitment and ability to save, which reduces the lender’s risk. Additionally, the down payment ensures that the buyer has some equity in the property from the start, which can help prevent the situation where the borrower owes more than the home is worth if property values decline.

Paying more ahead, whether in the form of a larger down payment or making extra payments on a loan, can significantly benefit borrowers over time. By decreasing the loan balance faster, you pay less in interest, potentially saving thousands of dollars over the life of the loan.

How much should I put down?

When deciding how much to put down on a home, it’s important to consider what you can afford without overextending your finances. We understand not every household can afford a 20% down payment, especially in today’s market. Thankfully, there are programs available, such as first-time homebuyer assistance, that offer financial support and can help reduce the upfront cost of purchasing a home. These programs, which vary by state, can provide lower down payment requirements, grants, or even forgivable loans, making homeownership more accessible for first-time buyers.

Remember, it’s important to consider what your potential monthly payment will be when determining your down payment. You can find out more using

Down Payment Calculator

Discover how much you need to save for your home's down payment.

Enter the home price:

Desired down payment percentage:

Closing costs percentage:

Include closing costs in calculation

Frequently Asked Questions

Frequently Asked Questions: Down Payments

A down payment is the initial amount of money you pay upfront when purchasing a home. It typically represents a percentage of the property's total price, and the amount you pay will depend on the type of mortgage and your financial situation. The larger the down payment, the less you’ll need to borrow, potentially reducing your monthly mortgage payments and interest costs.

The amount of your down payment depends on what you can afford and the type of loan you’re applying for. For conventional loans, down payments typically range from 5% to 20%. Government-backed loans, like FHA loans, may require as little as 3.5%. While putting down a larger sum can help reduce your monthly payments, it's important to make sure you're not overextending your finances.

The minimum down payment required varies depending on the type of loan. FHA loans typically require a minimum of 3.5%, while conventional loans may require at least 5%. However, some loan programs, such as VA loans for veterans, may not require any down payment at all. It's important to explore your options to find the best fit for your financial situation.

No, you don’t necessarily need to put 20% down on a house. While a 20% down payment can help avoid private mortgage insurance (PMI) and may result in lower monthly payments, many loans allow for much lower down payments. In fact, first-time homebuyer programs and government-backed loans offer down payment options as low as 3% or 3.5%.

Private mortgage insurance (PMI) is often required if your down payment is less than 20% of the home's purchase price. PMI protects the lender in case you default on the loan. While it doesn’t benefit you directly, paying PMI can be worthwhile if it allows you to buy a home with a lower down payment.