What It Means
A down payment is an initial lump-sum payment made toward the purchase of an expensive asset, typically a home or vehicle. The down payment reduces the total amount you need to borrow, which lowers your monthly payments and the total interest paid over the life of the loan. For homes, conventional loans typically require 5-20% down, though FHA loans allow as little as 3.5%. Putting less than 20% down on a home usually requires private mortgage insurance (PMI), which adds to your monthly costs. A larger down payment demonstrates financial stability to lenders, can help you secure a lower interest rate, and builds immediate equity in the asset.
Frequently Asked Questions
How much should you put down on a house?
20% is the traditional benchmark to avoid PMI, but many buyers put down 5-15%. FHA loans allow 3.5% with a 580+ credit score. The right amount depends on your savings, monthly budget, and local market.
Can your credit score affect your down payment requirement?
Yes. Lower credit scores may require larger down payments. For example, FHA loans require 10% down for scores of 500-579, versus 3.5% for 580+.