{"id":1771,"date":"2021-10-26T10:00:55","date_gmt":"2021-10-26T10:00:55","guid":{"rendered":"https:\/\/www.discoveryhomes.com\/blog\/?p=1771"},"modified":"2025-02-19T18:11:36","modified_gmt":"2025-02-20T01:11:36","slug":"down-payments-what-are-they-and-how-much-do-i-need","status":"publish","type":"post","link":"https:\/\/www.discoveryhomes.com\/blog\/down-payments-what-are-they-and-how-much-do-i-need\/","title":{"rendered":"Down Payments: What Are They and How Much Do I Need?"},"content":{"rendered":"\n

Down payments play an important role in the home buying process; they impact the type of mortgage you qualify for, how much you will borrow, and can influence your interest rate. They can also set you apart from other buyers. But if you\u2019re a first-time homebuyer, you may be wondering what exactly a down payment is and how much you need. Read on to learn more.<\/p>\n\n\n\n

What is a down payment?<\/h2>\n\n\n\n

The down payment is the cash deposit paid towards the\npurchase of a home. It\u2019s typically expressed as a percentage of the total\npurchase price. The remaining balance of the purchase price is covered by a\nloan secured from a lender. The larger the down payment, the less you need to\nborrow to cover the remaining purchase amount.<\/p>\n\n\n\n

How do down payments work?<\/h2>\n\n\n\n

The down payment is the amount you\u2019ll pay upfront, usually\nin cash. Lenders will take your down payment and subtract that from the final\npurchase price of the home to determine how much you\u2019ll need to mortgage. <\/p>\n\n\n\n

Once your offer has been accepted, a portion of your down\npayment will be deposited into a trust or escrow account that will be paid out\nat closing. This is called your earnest money or good faith deposit. The\nremainder will be due right before closing.<\/p>\n\n\n\n

It\u2019s important to know that your down payment is separate\nfrom the closing costs. Depending on your negotiated offer, you should expect\nto pay an additional 2-7% of the final purchase price.<\/p>\n\n\n\n

What are minimum down payment requirements?<\/h2>\n\n\n\n

Some first-time buyers are surprised to find that 20% is not\nthe minimum down payment amount. In fact, the average down payment for\nfirst-time homebuyers is 6% and 16% for repeat home buyers. <\/p>\n\n\n\n

The minimum down payment required depends largely on the type of loan you get. Your lender may set a minimum down payment requirement so check with them for exact figures.<\/p>\n\n\n\n

How much should your down payment be?<\/h2>\n\n\n\n

The size of your down payment is up to you as long as you meet your lender\u2019s minimum requirement. Deciding how much your down payment will be can be difficult. Some people remain laser-focused on putting down 20% or more. Others are fine with a smaller down payment if that means they\u2019ll have more in reserves for contingencies or emergencies. There are some pros and cons for both options that must be carefully considered.<\/p>\n\n\n\n

Pros of larger down payments<\/h3>\n\n\n\n

There are several benefits of having a larger down payment:<\/p>\n\n\n\n