What is a Down Payment?
Summary: A down payment is money paid upfront as an initial installment on a purchase made with credit. Down payments commonly range from 3% to 20% when you get a mortgage. Different loan types have different down payment requirements.
A down payment is money paid upfront, for mortgages usually at closing, to complete a financial purchase typically paid for on credit. There is a general range—3% to 20%— for down payments on a home mortgage loan. There are benefits to both a large and small down payment when it comes to your home.
A larger down payment means the buyer is using more of their own funds during their home purchase. A larger down payment also increases the equity you have readily available in your home.
A lower down payment can also be a sound financial decision. There are a variety of reasons a homebuyer may choose to put less than 20% down. Homebuyers may wish to use their extra savings on home renovations, have a rainy-day fund, or choose to make an investment.
Traditionally larger down payments were once recommended; however, different loan types have adjusted their requirements to promote healthy home purchasing habits. Below is the current minimum down payment for common home loan types for Hall Financial clients.
- Conventional – 3%
- FHA – 3.5%
- USDA and VA – borrowers may qualify for 0% down.
In addition to adjusting requirements, each state has individual down payment assistance programs for first-time homebuyers.
For more information, chat with us at callhallfirst.com or give us a call at 866-Call-Hall.
