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What a down payment on a home is, who it goes to and where it comes from

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Down payment on a home: The basics
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Down payment on a home: The basics | Indeed/Getty Images

Down payment on a home: The basics

What is a down payment on a home?

The down payment is money you give to the home's seller. The rest of the payment to the seller comes from your mortgage. Down payments are expressed as percentages. A down payment of at least 20% lets you avoid mortgage insurance.

To explain how bankers and real estate agents talk about down payments, let's say you buy a house for $100,000:

  • A 3% down payment means that you pay the seller $3,000 and you borrow $97,000. RATE SEARCH: Find a low down-payment mortgage today.
  • With a 20% down payment, you would pay the seller $20,000 and you would borrow $80,000.

Sometimes you'll hear a phrase like, "Alex put 20% down on the house." That means that Alex made a 20% down payment.

The money for a down payment can come from:

  • Your own savings.
  • The money you get when you sell a house.
  • Gifts and grants from family, employers and nonprofits.
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