If you dream of buying a home, then you’re probably aware that you’ll need to make some kind of down payment. A down payment is a percentage of the home’s purchase price that you pay upfront. For example, a 10% down payment on a $300,000 home would be $30,000. This lump sum — and additional closing costs — are paid on the closing date.
But why is the down payment so important, and how much do you need to save up?
How Down Payments Work
Minimum down payment requirements can vary depending on the loan type. While some types of mortgages have low down payment requirements, there are worthwhile benefits to putting more money down:
- Generally, the larger your down payment, the lower your total loan costs. That’s because qualified borrowers who put more money down usually get better interest rates.
- You’re more likely to get approved for a mortgage if you make a larger down payment.
- Putting at least 20% down with a conventional loan lets you avoid paying for private mortgage insurance, and save some money.
Saving for a down payment can take a while. You might choose to hold off on buying a home until you can afford a 20% down payment, or put less money down and accept higher overall costs if you wish to buy sooner rather than later.
Down Payment FAQ
Here are the answers to some frequently asked questions about down payments.