Your down payment is a significant, one-time contribution toward the purchase of a home. Most lenders require a down payment because it helps reduce their risk in case a borrower defaults on the mortgage. It is typically expressed as a percentage of the home's purchase price, with the rest of the cost covered by a mortgage loan. For example, if a house costs $300,000 and the buyer makes a 20% down payment, they would pay $60,000 upfront and finance the remaining $240,000 through a mortgage.

 

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A common misconception is that you need a 20% down payment to buy a home. While this is often considered ideal, it isn’t necessary—and for many first-time buyers, it's not practical. Fortunately, there are plenty of options available if you don’t want to put 20% down. For instance, you can secure a conventional loan with as little as 5% down, and FHA loans require a minimum down payment of just 3.5%. There are even down payment assistance programs that offer 0% down, making homeownership more accessible.

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That said, there are benefits to making a larger down payment. A larger down payment typically opens up more loan options, leads to smaller monthly payments, and often results in a lower interest rate. Additionally, putting at least 20% down on a conventional loan allows you to avoid paying private mortgage insurance (PMI), which can save you money in the long run.