Real Estate Glossary > D > Down Payment Definition

The amount of money a buyer pays in cash at closing to fund a home purchase, usually expressed as a percentage of the total home price. With FHA loans A loan with a low down payment and competitive interest rates that is insured by the Federal Housing Administration, a government agency that that provides funding for these loans from mortgage insurance payments. , buyers are required to pay at least 3.5% down payment. With conventional loans A mortgage loan not insured by any government program and follows guidelines set by the government-sponsored institutions Fannie Mae and Freddie Mac. , they should pay at least 20% of the purchase price of the home. Before the 2008 credit crunch, borrowers could get conventional loans with 5 - 10% down, but tightened lending standards require borrowers to put more skin in the game from the start. A larger down-payment is also attractive to sellers and banks selling REO (Real Estate Owned homes) Short for "real estate owned," REOs are foreclosed homes owned by banks and lenders. . Down-payments are paid via cashier's check or wire transfer to the escrow agent A neutral third party or attorney that handles the exchange of money and documents once mutual acceptance is reached on an offer. or the attorney handling the closing of the deal and must be paid after signing the final papers.