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Down Payment
Definition
A down payment is the initial upfront payment made when purchasing a home or other large asset, representing the buyer's equity from the start.
Explanation
The down payment is the portion of the purchase price you pay out of pocket, with the remainder financed through a mortgage. A larger down payment reduces the loan amount, potentially securing better interest rates and eliminating the need for PMI.
Conventional loans typically require 5-20% down. FHA loans may require as little as 3.5%. A 20% down payment eliminates private mortgage insurance (PMI).
Example
A 20% down payment on a $400,000 home is $80,000, leaving a $320,000 mortgage. A 10% down payment would be $40,000 but requires PMI.