How to Make a Down Payment on a House

When you purchase property, lenders require that you make a down payment, or a cash deposit towards the total purchase price. Your down payment counts as payment and is not calculated into your loan amount; thus, the larger your down payment, the less you’ll borrow and the lower your payments will be.

The Downpayment Process

When you make an offer on a home and the seller accepts your offer, you’ll typically make a deposit within three days to demonstrate that you’re serious about following through with the purchase. This deposit is also known as earnest money or a good faith deposit, usually between 1% and 3% of the purchase price, and these funds are used towards your closing costs. If the sale does not go through, you or the seller may be entitled to the funds depending on the reason the sale did not proceed.

The rest of your down payment is made at closing, representing the difference between the total purchase price plus the closing costs (usually between 1% and 8% of the sale price) you’re responsible for and your loan amount. For instance, if you’re purchasing a home for $100,000 and make a 3% deposit of $3,000 with the intention of making a 20% down payment, you’d need the difference of 17% or $17,000 at closing, plus the additional amounts for other closing costs.

The higher the amount you’re able to put down, the lower your interest rate and monthly payments. For this reason, many home buyers choose to wait and save money to use as a down payment before purchasing property. Additionally, some buyers opt to tap into other sources for down payment funds, such as a 401(k), IRA, friends and family, or piggy-back loans. Talk with your Redfin agent and your mortgage lender to discuss your options.