What is a down payment and what is the percentage needed?

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What Is a Down Payment


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A down payment is a portion of money that you pay for your new home up front. Typically, it is expressed as a percentage of the price of the house. For example, if you are buying a house for $100,000 and offer a 10% down payment, it means that you pay $10,000 now and secure a mortgage for $90,000.

Down payments show a mortgage lender that you are a serious and credible buyer. It also shows stability and responsibility, making the bank more comfortable lending to you. The best part is that a down payment reduces the size of your mortgage.

A reasonable down payment can save you money immediately and on an ongoing basis. By making a 20% down payment, you avoid having to pay Private Mortgage Insurance (PMI). PMI payments can last for years, costing you hundreds of dollars every month - adding up to tens of thousands of dollars.

Down payments are important but not crucial. Plenty of lenders offer �no down payment� mortgages, but they do have higher interest rates. Offering a down payment saves you money now and through the life of your mortgage.