Financial glossary
Down Payment
In plain English
The upfront cash you pay toward a purchase, reducing the amount financed; 20% down on a home avoids PMI.
A down payment is the cash you bring to a purchase, with the loan covering the rest. It sets your starting equity — put 10% down and you own 10% of the asset on day one — and shapes nearly every term of the financing attached to it.
On homes, the famous threshold is 20%: below it, conventional loans require PMI, an added monthly cost that protects the lender. But 20% is a pricing line, not an entry requirement — conventional programs exist at 3–5% down, FHA at 3.5%, VA at zero. The real trade-off is arithmetic: less down means a bigger loan, higher monthly payment, PMI, and more total interest; waiting years to save more means paying rent and today’s prices meanwhile. Neither side wins universally.
On cars, the down payment’s main job is defeating depreciation: vehicles lose value fastest in year one, and a thin down payment leaves you underwater — owing more than the car is worth — which turns an accident or forced sale into a debt problem.
A down payment is also the most direct affordability lever: each extra dollar adds a dollar of purchasing power on top of what income qualifies you for. See both effects with the affordability calculator and the mortgage calculator.
Related calculators
- Mortgage CalculatorEstimate a complete monthly mortgage payment with principal, interest, property tax, insurance, PMI, and HOA dues. See total interest and loan cost.
- Car Loan CalculatorEstimate your monthly car payment including trade-in value, down payment, and sales tax. See total interest and the full cost of your auto loan.
- Mortgage Affordability CalculatorFind the home price your income supports using the 28/36 rule lenders use, including your debts, down payment, taxes, and insurance.