Down Payments: How They Work & How Much To Pay


Don’t let the fear of a down payment close the door on opportunity. 

What’s considered one of the biggest roadblocks for home buyers? The dreaded down payment. But here’s a window on how to ease the down payment dilemma:  know the facts, including how much you should put down, the benefits, and the upshot of lower down payments 

The Standard 20% Down Payment:  Benefits Sure To Be Of Interest To You 

Put simply, a down payment is the money you pay upfront to get a home loan; the down payment amount is deducted from the total mortgage amount. It serves as the beginning equity (your ownership stake) in a house and property. 

Lenders generally prefer a 20% down payment from you; providing 20% upfront often comes with benefits such as a better mortgage interest rate, lower upfront and ongoing fees, more equity in your home from the get-go, and a lower monthly payment. 

But remember that the down payment isn’t the only upfront money you’ll be expected to provide:  Closing costs and earnest money also come into play before you sign on the proverbial dotted line that leads to home ownership.  

An Upside To Lower Down Payments? 

If you’re finding that the standard 20% down payment is too steep for your budget, you can actually buy a home with as little as 3% down. The Federal Housing Administration; Fannie Mae and Freddie Mac, the government-sponsored companies that drive the residential mortgage credit market; and even some commercial lenders offer lower down payment loans. 

Some commercial lenders even go so far as to offer no down payment to spur loan demand. In addition, individuals living in a rural area or those who are an active or retired service members might qualify for zero down payment programs offered by the Department of Agriculture’s Rural Development program or the Department of Veterans Affairs.

One thing to keep in mind:  In the eyes of the lender, a lower down payment makes you a bigger risk, which most likely will result in the need for taking out mortgage insurance. In addition to an upfront fee, there’ll likely be an ongoing charge built into your monthly mortgage payment to cover the insurance cost. 

Final Thought

To determine which down payment amount will work best for you, talk with multiple mortgage providers to find the options best suited to your budget. Comparing fees, down payment requirements, and interest rates can help save you thousands of dollars — and years of aggravation — over the life of your loan. In terms of buying a home, there’s no doubt about it:  knowledge is key. 


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Down Payments: How They Work & How Much To Pay

Kat Begonja

Lover of animals, writing and all things Croatian!

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