Definition
A down payment is the upfront cash you pay toward a purchase, which directly reduces the amount you need to borrow. A larger down payment means a smaller loan, lower monthly payments, less total interest, and often a better interest rate from lenders.
Example
A 20% down payment on a $350,000 home is $70,000, leaving a $280,000 mortgage. The same home with only 5% down ($17,500) leaves a $332,500 loan — over $50,000 more to borrow, plus monthly PMI costs until you reach 20% equity.
How It's Calculated
Loan Amount = Purchase Price − Down Payment
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