Definition of "Down Payment"

In general, a Down payment is a one-time payment a buyer makes to diminish the risks of the seller of expensive goods like a car, or a house. In Real Estate, the home buyer makes a down payment right off the bat and, then, honors the mortgage loan in monthly installments.

Down payments in Real Estate are usually calculated by observing the difference between the value of the property and the mortgage loan amount, and, then, expressed in dollars or as a percentage of the full value.

For example: if a house is valued at $100,000 and the loan is for $80,000; the down payment is $20,000 or 20%. In America, that value is usually between 3.5 to 20%.

But this definition is dependant on a lot of factors, like credit score and, sometimes, debt-to-income ratio. The higher the down payment, the lower the premiums (the amount of money you pay for each monthly installment) because the less the risk the seller/lender has of losing money should you default.

Real Estate Tips:

You can become an expert in one shot or through several installments... be our guest; accessing our glossary terms and finding a local real estate agent via our agent directory is 100% free!

Comments for Down Payment

ALAN PE BENITO ALAN PE BENITO said:

How to buy a property without downpayment?

Apr 03, 2019  09:20:56

 
Real Estate Agent

When you are looking for a mortgage with no down payment, it means that you expect the lender to cover the entire purchase, so the loan-to-value ratio is 100%. It also means that your credit risk is huge and our real estate agents will tell you that it's very hard to buy real estate with no money down. There are only three 0 down home loans available in the US. Veterans, active duty service members, National Guard members and reservists may qualify for a VA loan. Another option would be the USDA loans for rural areas. And the third one - the Navy Federal Credit Union 100% Financing. You should know that there are conventional mortgages that allow only a down payment of 3%, so an LTV of 97% but private mortgage insurance (PMI) is required for a few years. FHA loans allow very low down payments of only 3.5% if you have a good credit score. Maybe you should try to save some money for a few years to have more options at hand. 

Apr 04, 2019  06:25:25
 
 
image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Mortgage Terms

The ratio of housing expense to borrower income. This ratio is one factor used in qualifying borrowers. ...

An agreement by the lender not to exercise the legal right to foreclose in exchange for an agreement by the borrower to a payment plan that will cure the borrowers delinquency. ...

A lender who delivers loans to another (usually larger) lender against prior price commitments the larger lender has made to the correspondent. Mortgage brokers sometimes evolve into ...

Every ARM is tied to an interest rate index. An index has three relevant features:availibility, level, volatility. All the common ARM indexes are readily available from a published source, ...

Same as term Interest Rate: The rate charged the borrower each period for the loan of money, by custom quoted on an annual basis. A mortgage interest rate is a rate on a loan secured by a ...

A mortgage lender or mortgage broker. ...

Proliferation in the number of loan, borrower, property, and transaction characteristics used by lenders to set mortgage prices and underwriting requirements. Nichification is unique to ...

A mortgage on which half the monthly payment is paid twice a month. It should be called a 'semi-monthly mortgage' but market practice often trumps logic. In contrast to a biweekly, a ...

In connection with a home, the value of the home less the balance of outstanding mortgage loans on the home. ...

Popular Mortgage Questions