Down Payment

When you buy a home with a mortgage, you typically don't finance the entire purchase price. You pay a portion of it yourself: that's the down payment. The lender finances the rest.

Down payment is usually expressed as a percentage of the purchase price. If you're buying a $350,000 home with a 10% down payment, you'd put $35,000 down and finance the remaining $315,000 through your mortgage.

One distinction worth understanding early: the down payment is separate from closing costs. Both are due at or around closing, but they're different expenses. The down payment is part of the purchase price itself. Closing costs are the fees associated with completing the transaction, including lender fees, title and escrow charges, prepaid items, and so on. Budgeting for both is part of understanding what you'll need at closing.

The size of your down payment affects your loan in several ways. A larger down payment reduces the amount you're borrowing, which can lower your monthly payment and reduce the total interest paid over the life of the loan. Depending on the loan type and amount financed, your down payment amount may also determine whether mortgage insurance is required.

That said, a larger down payment isn't automatically the right choice for every buyer. Putting more down reduces cash reserves, which matters if unexpected expenses come up shortly after you move in. Spreading a larger down payment over several years of rent while saving may or may not make financial sense depending on your situation.

Different loan programs have different down payment minimums, and what's optimal varies based on the buyer's financial picture, the loan structure, and other factors. A lender can walk through how different down payment amounts affect your monthly payment and overall costs given your specific situation.

A buyer purchases a home for $400,000. They put 10% down ($40,000) and finance the remaining $360,000 through a mortgage loan.

This is a simplified example. The actual amount the buyer needs at closing is the down payment plus closing costs, prepaid items, and any other amounts due, not the down payment alone. A lender will provide an estimate of the total cash needed to close based on the specific transaction and loan.

"You need 20% down to buy a home."

This is one of the most common misconceptions about home buying, and it causes some buyers to delay purchasing longer than necessary or to rule out homeownership entirely.

Down payment requirements vary by loan type, lender guidelines, and borrower qualifications. Some loan programs allow significantly lower down payments for buyers who meet eligibility requirements. The right down payment amount depends on the loan type, what you qualify for, and what works for your overall financial picture.

The 20% figure does carry practical significance in some loan structures, as it can affect whether mortgage insurance is required on certain loan types, but it is not a universal threshold required to buy a home. A qualified lender can explain what options may be available based on your specific situation.