A down payment is money that the buyer must pay up front to buy a home. When a person takes out a mortgage the lender or bank in almost all cases will require that the person borrowing the money make a down payment.

A down payment is money that the borrower gives the bank. It reduces the total amount of the mortgage and is the difference between the amount of money that is borrowed and the total price of the house. It is usually paid in cash.

Lenders require a down payment encase you default on the loan. By requiring you to put down money up front the lender only has to recover the original selling price less the amount of money you put up front.

For most first-time home buyers, saving enough money for a down payment is a major hurdle to owning a home. In the past lenders have preferred or required you to put down at least 20% of the price of the home. Though these days, lenders will almost always accept less than 20% provided you buy private mortgage insurance. Recently lenders have accepted as little as 0% to 3% of the value of a home.

How Much Should You Put Down?

When deciding how much money to put down you should remember that the higher the down payment the lower your mortgage and the amount of money you pay each month.

If you are in a position where you can put 20% down it is most likely in your best interest to do so. Another thing to remember is that with a %20 down payment you will not be required to buy .private mortgage insurance or PMI

While a good amount of people are not in a position to put %20 down, in general it is a good idea to put down as much as possible. Though you need to take in consideration all of the costs of the loan (including closing costs) when making your decision.

Example of a down payment

If you were making a down payment of 20 % on a house that is worth $200,000 then the down payment would be $40,000 and you would need to borrow $160,000 (plus closing costs and other costs).

If you made a down payment of 10% on a house that is worth $200,000 then the down payment would be $20,000 and you would need to borrow $180,000 (plus closing costs and other costs). In this case you would also have to buy Primary Mortgage Insurance.