What Is Down Payment

In real estate, a down payment is the amount of money that you will have to pay initially when buying a home or any other type of property, with the rest of the payments coming from the mortgage. Typically, this amount is expressed as a percentage of the total purchase price. For example, if you are asked to make a down payment of 20%, you will be paying 20% of the total price the seller is offering you upfront. And, it is paid during the closing process.

While a seller or a lender in the US usually requires you to come up with a down payment of at least 20%, the amount can still vary depending on your agreement. Some lenders have become less tight to require lower down payments, but other strict lenders would require more than that. Especially when you have a tainted credit history, you might be required to pay a large amount before you can close on a deal. This is the lender’s way of protection in case you are no longer able to pay your mortgage for some reason.

On your end, making a down payment also provides certain advantages. It eliminates the risk of losing the money that you will need to pay to fund your property purchase, preventing foreclosure. It also gives you an incentive to make mortgage payments and an instant equity on your new property.

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