What Does “Down Payment” Mean In Real Estate?
A down payment is the amount of money that a buyer has saved to help fund the purchase of a home. This amount is usually given as a percentage of the total of the home’s purchase price. For example, a common down payment amount is 20 percent, which means the buyer will be paying 20 percent of the total purchase price upfront. This amount is usually paid in the form of a cashier’s check during the closing process.
Most people do not have the kind of money to pay cash for a home; therefore, they must obtain a mortgage loan to pay for the home. Most often, a lender will require the homeowner to provide a down payment. A lender will usually require the soon-to-be-homeowner to come up with a down payment of at least 20 percent, but the amount varies on the lender. Some lenders may require more than that, and recently, lenders have become more relaxed and have started requiring amounts closer to 10 percent, 3 percent or even no down payment at all.
If a lender sees that you have less-than-perfect credit, there might be a requirement for you to provide the entire 20 percent or even more before closing on the loan. This is the lender’s way of protecting itself if, for some reason, you can no longer pay your monthly mortgage.
One of the biggest benefits to a down payment is that the buyer is creating instant equity in the new home. Another advantage to having a down payment is that it is possible that you will be able to receive a better interest rate and mortgage terms than you would if you did not have a down payment at all.
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