The down payment is the amount of cash that a buyer of a piece of real estate has on hand to pay to the seller at the time of the closing. The down payment may range from 3 to 25% of the purchase price, depending on the type of loan that the buyer will be obtaining in order to complete the financing. Generally, more favorable rates and terms to finance the remainder of the purchase price can be obtained with a larger down payment. Traditionally, the source of the down payment came out the buyer’s savings. Other sources of a down payment may be a gift from parents or other people, mortgage on another property or the sale of an existing home. The down payment represents the amount of the personal equity that the buyer invests in the purchase of the real estate.
