What Is a Down Payment on a House?

Putting money down on the house is the largest obstacle most homebuyers face, especially first-time homebuyers.

But most people believe myths about the required down payment. The truth is you don’t need 20% down to buy a house.

So how much do you need?

Find out what a down payment is on a house and more in our guide below.

What Is a Down Payment on a House?

A down payment is your investment in the home. Most mortgages require you to invest at least a little of your own money outside of the loan.

It gives you’ skin in the game,’ providing lenders with the reassurance that you’ll repay your loan and not risk losing the money you invested in the home.

The down payment is a part of the sales price and reduces the amount of money you must borrow to buy the home. You pay the money at the closing and the loan closing costs. 

How Does a Down Payment on a House Work? Example.

The down payment is a percentage of the sales price. For example, if you offer $300,000 on a home and the lender requires a 10% down payment, you’d put down $30,000 on the house and borrow $270,000.

Each lender and loan program has different down payment requirements, so it’s always good to shop around, especially if you don’t have a large down payment saved.

You must have the money available in a liquid account, such as a checking, savings, or stockbroker account.

You’ll provide a cashier’s check or wire at the closing. The closing agent adds the down payment to the loan proceeds to pay the seller the full sales price.

Remember, the down payment is separate from the closing costs. Most loans have closing costs between 3% – and 5% of the loan amount. Using our example above, you’d need an extra $8,100 to $13,500 for closing costs.

First-Time Homeowners Down Payments: How Much Should I Put Down?

The down payment is often the largest struggle for first-time homebuyers. Between paying for rent and other obligations, it’s hard to save enough money to put down on a home.

Fortunately, most loan programs don’t require a large down payment – the highest is 3.5%, but that doesn’t mean that you shouldn’t invest it if you have the money. Just don’t think you can only get a home with a 20% down payment – there are other options.

Decide how much you are comfortable putting down, along with what mortgage payment you’re comfortable paying each month.

A larger down payment lowers your monthly payment, but if it stresses you out financially, consider making the minimum down payment on a house.

What Is the Minimum Down Payment on a House?

The minimum down payment on a house depends on the loan program you use. Some programs, like the VA and USDA programs, don’t require a down payment. Others require between 3.0% – 3.5% down on a home.

Bottom Line: What Is a Down Payment on a House?

The down payment is an important part of buying a house. We feel you should put at least some money down, even if you use a 0% down payment program.

It gives you equity in the home, lowers your payment, and gives you a feeling of responsibility, knowing that you don’t want to default on your mortgage or you’ll lose your investment.