The down payment is the portion of the purchase price that the buyer pays out of pocket at closing, with the remainder financed through a mortgage. It represents the buyer's initial equity in the property and is one of the most significant factors in the home-buying process — affecting loan approval, interest rates, monthly payments, and whether private mortgage insurance is required.
Down payment requirements vary significantly by loan type. Conventional loans typically require 3% to 20% — with 20% being the threshold that eliminates PMI requirements. FHA loans require as little as 3.5% with a credit score of 580 or higher. VA loans and USDA loans offer 0% down payment options for eligible borrowers. Jumbo loans typically require 10% to 20% down due to the larger loan amounts involved.
A larger down payment offers several advantages. It reduces the loan amount, which means lower monthly payments and less total interest paid over the life of the loan. It eliminates or reduces PMI costs. It may qualify the borrower for a better interest rate because lower loan-to-value ratios represent less risk for the lender. And it makes the buyer's offer more attractive to sellers in competitive markets, as a larger down payment signals financial strength and reduces the risk of appraisal issues.
Lenders require documentation showing that down payment funds are properly sourced — meaning the money is from acceptable sources (savings, investments, retirement accounts, gift funds from family) and has been in the buyer's account for a sufficient period (usually 60 days). Large unexplained deposits can raise red flags during underwriting. Gift funds typically require a gift letter confirming the money does not need to be repaid. Borrowed funds (except from certain approved sources) generally cannot be used for a down payment.
At closing, the down payment is part of the total cash to close, which also includes closing costs and prepaid items, minus any credits. Use Beycome's free down payment calculator to explore different scenarios, and our closing cost calculator to see the full picture of what you'll need at closing. Get your free quote.