We are an independent, advertising-supported comparison service. Our objective is to empower you to make confident financial decisions by giving you access to interactive tools and financial calculators, publishing original and unbiased content, and allowing you to conduct free research and information comparisons.
Issuers that Bankrate has partnerships with include American Express, Bank of America, Capital One, Chase, Citi, and Discover, among others.
What is a down payment?
A down payment is the initial cash payment a buyer makes during a real estate transaction. It represents a percentage of the total purchase price of the home. For most conventional mortgages, the down payment typically ranges between 3% and 20% of the purchase price.
Why is a down payment important?
A down payment serves several important purposes:
- Reduces your loan amount and monthly payments: A larger down payment means you’ll borrow less money, resulting in lower monthly mortgage payments. This can free up your budget for other expenses or help you pay off your mortgage faster.
- Improves your chances of loan approval: Lenders view a larger down payment as a sign of financial responsibility and stability, making you a more attractive borrower. This can increase your chances of getting approved for a loan and potentially qualify you for better interest rates.
- Builds equity in your home: Equity is the difference between the market value of your home and the amount you owe on your mortgage. A larger down payment means you’ll start with more equity in your home, which can be beneficial for several reasons, such as accessing a home equity line of credit or using it as leverage for future investments.
- Eliminates the need for private mortgage insurance (PMI): If you put down less than 20% on a conventional loan, you’ll typically be required to pay PMI. This is an additional monthly insurance premium that protects the lender in case you default on your mortgage. By putting down 20% or more, you can avoid this extra cost.
How much down payment should you make?
The ideal down payment amount depends on several factors, including your financial situation, risk tolerance, and the type of mortgage you’re considering. Here are some key considerations:
- Your budget: Can you comfortably afford a larger down payment without straining your finances? Remember, you’ll also need to factor in closing costs and other upfront expenses.
- Your credit score: A higher credit score can qualify you for lower interest rates, which may make it more feasible to put down a smaller down payment.
- The type of mortgage: Some loan programs, such as FHA loans, allow for down payments as low as 3.5%. However, these loans may come with additional fees or restrictions.
- Market conditions: In a competitive housing market, a larger down payment can make your offer more attractive to sellers.
Tips for saving for a down payment:
Saving for a down payment can be a daunting task, but it’s definitely achievable with careful planning and discipline. Here are some tips to help you reach your goal:
- Create a budget and track your expenses: This will help you identify areas where you can cut back and free up more money for savings.
- Set realistic savings goals: Start with a small, achievable goal and gradually increase it as you make progress.
- Automate your savings: Set up automatic transfers from your checking account to your savings account on a regular basis.
- Explore down payment assistance programs: There are various government and community programs that can help first-time homebuyers with down payment assistance.
- Consider a side hustle: Earning extra income through a side hustle can significantly boost your savings.
Down payment FAQs:
- What is the minimum down payment for a house?
The minimum down payment for a conventional loan is 3%. FHA loans require a minimum down payment of 3.5% with a credit score of 580 or higher. For scores between 500 and 579, the minimum is 10%. VA loans and USDA loans do not require any down payment, but they are reserved for members of the military and veterans or buyers in rural areas, respectively. - Why do mortgage lenders require a down payment?
Mortgage lenders require a down payment to reduce their risk. If the borrower defaults on the loan, the lender can sell the property to recoup their losses. A larger down payment means the lender will have less money at risk. - Why are down payments good for homebuyers?
A down payment benefits the homebuyer in several ways. It reduces your monthly mortgage payments, saves you money on interest in the long run, and builds equity in your home. Additionally, putting down at least 20% on a conventional loan means avoiding paying for private mortgage insurance. In a competitive housing market, a substantial down payment can also make your offer more attractive to sellers.
A down payment is a crucial aspect of homeownership. By carefully considering your financial situation, risk tolerance, and the type of mortgage you’re considering, you can determine the ideal down payment amount for your needs. With careful planning and discipline, you can achieve your homeownership dream and enjoy the benefits of owning your own home.
How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We always work to give customers the professional guidance and resources they need to be successful on their financial journey.
Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.
By outlining our revenue streams, we are open and honest about how we are able to provide you with high-quality material, affordable prices, and practical tools.
Bankrate. com is an independent, advertising-supported publisher and comparison service. We receive payment when you click on specific links that we post on our website or when sponsored goods and services are displayed on it. Therefore, this compensation may affect the placement, order, and style of products within listing categories, with the exception of our mortgage, home equity, and other home lending products, where legal prohibitions apply. The way and location of products on this website can also be affected by other variables, like our own unique website policies and whether or not they are available in your area or within your own credit score range. Although we make an effort to present a variety of offers, Bankrate does not contain details about all financial or credit products or services.
Portions of this article were drafted using an in-house natural language generation platform. The article was reviewed, fact-checked and edited by our editorial staff.
- The down payment is the buyer’s first cash outlay for a property during a transaction. It stands for a portion of the house’s entire purchase price.
- Depending on the kind of mortgage being used, down payments can range from 3 to 20 percent of the purchase price. Some loan programs dont require a down payment at all.
- A bigger down payment lowers your monthly mortgage payment and, over time, saves you money on interest.
Most homebuyers getting a mortgage have to pay a portion of the property’s purchase price upfront. This amount is called a down payment. The precise amount of your down payment will depend on a number of variables in addition to the house’s price. Here’s what to know.
How We Make Money
The offers that appear on this site are from companies that compensate us. Unless our mortgage, home equity, and other home lending products are specifically prohibited by law, this compensation may have an impact on how and where products appear on this website, including, for example, the order in which they may appear within the listing categories. However, this payment has no bearing on the content we post or the user reviews you see here. We do not include the universe of companies or financial offers that may be available to you.
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Heres an explanation for . Bankrate logo.
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve upheld this reputation for more than 40 years by assisting people in making sense of the financial decision-making process and providing them with confidence regarding their next course of action.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of the content we publish is objective, accurate, and reliable because it is written by highly qualified professionals and edited by subject matter experts.
In order to give you peace of mind when making decisions as a buyer and homeowner, our mortgage reporters and editors concentrate on the topics that matter most to consumers: the newest rates, the greatest lenders, navigating the homebuying process, refinancing your mortgage, and more. Bankrate logo.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
We value your trust. Our goal is to give readers reliable, unbiased information, and we have established editorial standards to make sure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.
Bankrate’s editorial team writes on behalf of YOU — the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. Thus, you can be sure that the information you’re reading, whether it’s an article or a review, is reliable and reputable. Bankrate logo.