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Down Payment

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A down payment is the amount paid in advance of delivery of the purchased good or service, usually to demonstrate good faith. A down payment can be associated with any kind of purchase. In real estate, the term down payment takes on a slightly different meaning. The good faith down payment in the usual sense is instead called earnest money, a contract deposit, or something similar, with the term down payment referring instead to the amount contributed at closing by the financing buyer. The size of a down payment on real property is a good measure of the risk of default for the lender. The larger the down payment, the less likely the borrower is to default on a mortgage given the size of the loss the buyer would incur. The minimum down payment is thus an important characteristic of most mortgage products.



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