Down Payment
Definition and meaning of Down Payment in real estate.
A down payment is the initial upfront cash payment a homebuyer makes toward the purchase of a property, representing a portion of the total purchase price. The buyer pays this amount directly at closing, and the remaining balance is covered by a mortgage loan.
In more detail
The size of the down payment directly affects the size of the loan, the monthly mortgage payment, and whether the buyer must purchase mortgage insurance. While a larger down payment reduces monthly costs and interest, many loan programs allow buyers to put down a smaller percentage.
Lenders verify the source of these funds to ensure they are from personal savings, investments, or documented gifts, rather than unrecorded personal loans. The required percentage can vary widely based on the loan type and the buyer's credit profile.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Who pays | The homebuyer or borrower at closing |
| Typical range | Varies from a small percentage to a substantial portion of the price |
| Watch out for | Private mortgage insurance requirements if the payment is small |
A buyer purchases a home and pays a set percentage of the purchase price as an upfront down payment at closing, securing a mortgage to finance the remaining cost of the house.
Frequently asked questions
Can a down payment be a gift from a relative?
Yes, most loan programs allow buyers to use gift funds for a down payment, but the donor must provide a signed gift letter confirming the money does not need to be repaid.
What is the minimum down payment required to buy a home?
Requirements vary by loan program. Some government-backed loans require no down payment, others require a small percentage, and conventional loans often require more to avoid private mortgage insurance.
Related terms
Sources & references
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