What does "Down payment" mean?

Definition

A down payment is the initial payment you make toward the purchase of a home. It's a percentage of the home's price, paid at closing, and reduces the total amount you need to borrow.

Understanding Down Payments

In the mortgage process, the down payment is usually one of the first steps after getting pre-approved. It works as your initial contribution towards the purchase price of the home. Simple terms: the higher the down payment, the less you borrow. Example: On a $200,000 home, a 10% down payment would be $20,000. It's not just a hurdle; it can lower monthly payments by reducing the loan amount. A common misconception is that a 20% down payment is always required. In reality, many options exist with lower percentages, depending on the loan type. Understanding how it fits into your overall budget helps make the home buying journey smoother.

People Want To Know

How much of a down payment do I need for a $300,000 house?

For a $300,000 house, a typical down payment is 20%, which amounts to $60,000. However, some loan programs allow for lower down payments, such as 3% ($9,000) or 5% ($15,000). Your specific required down payment will depend on the loan type and lender requirements.

Do you have to put a 20% down payment on a house?

No, you do not have to put a 20% down payment on a house. Many lenders offer mortgage options that allow for down payments as low as 3% to 5%. However, putting down less than 20% may require private mortgage insurance (PMI).

How much of a down payment do you need for a $500,000 house?

A down payment of 20% on a $500,000 house is $100,000. Some loans allow for lower down payments, such as 3% or 5%, which would be $15,000 or $25,000, respectively. The required down payment depends on the loan type and lender requirements.

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More From The Mortgage Glossary

Earnest money deposit

An earnest money deposit is a sum of money you give to a seller when you make an offer on a home. It shows you're serious about the purchase and is credited toward your down payment if the sale is completed.

Encumbrance

An encumbrance is a claim or charge on a property that affects its title and limits how the owner can use it. Examples include liens, easements, or zoning laws.

Equity

Home equity is the portion of your home's value that you actually own. It's calculated by subtracting your remaining mortgage balance from the home’s current market value.