down payment
The upfront portion of a purchase price paid in cash, with the remainder financed. Larger down payments reduce loan amounts and may eliminate PMI requirements.
Example
“With a 20% down payment of $80,000 on a $400,000 home, she avoided PMI and secured a lower interest rate.”
Memory Tip
DOWN payment = cash you pay DOWN upfront. More down = less borrowed = less risk.
Why It Matters
A down payment directly impacts how much you need to borrow and your monthly mortgage payments. A larger down payment means lower monthly costs, less interest paid over time, and can help you qualify for better loan terms and avoid private mortgage insurance costs.
Common Misconception
Many people believe they must save 20 percent down to buy a home, but in reality, many loans allow down payments as low as 3 to 5 percent. While smaller down payments mean you will pay PMI and carry a larger loan, they allow more people to enter the housing market sooner.
In Practice
If you purchase a house for 300,000 dollars, putting down 60,000 dollars leaves 240,000 dollars to finance at your loan rate. However, if you only put down 15,000 dollars, you would finance 285,000 dollars and likely pay PMI, but you preserve more cash for other needs like closing costs and emergency reserves.
Etymology
DOWN (paid immediately, upfront) PAYMENT. The payment made DOWN at the time of purchase.
Common Misspellings
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See Also
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