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Explained: What is a Down Payment When Buying a Home?

January 21, 2025

Few things are more exciting than buying a new home—especially if it’s your first time. Before diving headfirst into shopping, it's important to find your bearings and understand key concepts vital to the process. One of the most important components of buying a home is the down payment.  

Read the blog below to learn what down payments are, how they impact your monthly payments, and what to expect when it comes to how much they should cost: 

 

What is a Down Payment? 

A down payment is the initial sum of money you put toward purchasing a home if you’re financing it through a mortgage lender.  

A mortgage lender does not provide this lump sum of money, which is typically represented as a percentage of the home's total cost.  

According to the National Association of REALTORS®, 96% of buyers 43 years and younger financed their home purchase, meaning they did not outright buy the home with cash. As a result, most people under 43 provided a down payment when buying their home. 

 

When Down Payments Are Paid 

Down payments are commonly paid at the time of closing, when you’ve signed all the legal paperwork establishing you as the owner of the home. This finalizes the sale and usually takes place at the end of the homebuying process.  

 

How Does a Down Payment Impact My Monthly Payment?  

Put simply, the more you pay on your home up front, the less you’ll owe your mortgage lender. In other words, if you have a higher down payment, you’ll have a lower monthly payment over your mortgage term.  

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How Much Should I Expect My Down Payment to Cost? 

Down payments vary from one buyer to the next. And because interest rates, credit scores, and listing price impact the final cost, it’s difficult to predict the actual cost of a down payment unless you use something like a mortgage calculator to better understand how your home is financed.  

Traditional advice suggests that buyers should put down at least 20% of the cost of homes when they make a purchase. However, this figure isn’t often possible for buyers, especially if it’s your first time. In Q1 2024, the median down payment in the United States was $26,700 (approximately 8% of the median home purchase price).

As a result, there are plenty of other flexible options for homebuyers. For example, many lenders only require customers put down 5% or 10% to qualify for conventional loans while FHA loans only require 3.5% of the total loan amount. 

 

How Can I Learn More About Down Payments? 

Down payments aren’t tricky, but it’s essential to understand how they work and what to expect when buying a home.  

We recommend communicating clearly with your sales professional and REALTOR® (if applicable) to understand your buying power and how much you can and should put toward your down payment.  

Check out our handy First-Time Homebuyer’s Guide to learn more about the entire homebuying process, from start to finish. 

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Legend Homes is dedicated to an easy and exceptional homebuying experience. We deliver innovative home designs, loaded with value-added features at exceptional affordability. We build in premier Texas communities, where you will feel right at home.

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