What Is a Down Payment? Definition, How It Works, and How Much You Need in 2025

When you’re thinking about buying a home, one of the first financial hurdles is the down payment—but what exactly is it, and how much do you really need?

What Is a Down Payment?

A down payment is the upfront portion of your home’s purchase price that you pay at closing. The remaining balance is typically financed through a mortgage loan.

Example:
If you buy a $300,000 home and put down 10%, your down payment would be $30,000. Your mortgage would cover the remaining $270,000.

Why Lenders Require a Down Payment

Down payments serve several purposes:

1. Reduce lender risk – Your investment shows commitment, making the loan less risky.

2. Influence loan terms – A larger down payment can mean a lower interest rate.

3. Affect mortgage insurance – With less than 20% down on a conventional loan, you’ll likely need private mortgage insurance (PMI).

How Much Do You Need for a Down Payment?

The old rule of thumb was 20%, but that’s not required for most buyers. According to the NAR, the average down payment for first-time home buyers is around 6%-9% while repeat buyers down payment is around 23%. Today, many home loans allow for much smaller down payments:

National averages (NAR, 2024):

• First-time buyers: 8%

• Repeat buyers: 19%

Minimums by loan type:

• Conventional loans: As low as 3%

• FHA loans: Minimum 3.5%

• VA and USDA loans: May require no down payment if you qualify

Tip: The right amount depends on your budget, monthly payment comfort, and long-term goals. A bigger down payment can reduce your loan balance and monthly costs, but smaller down payments can help you buy sooner.

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Common Sources of a Down Payment

The most common sources of down payments for homebuyers:

• Personal Savings – money you’ve set aside in checking, savings, or investment accounts.

• Gift Funds – money you receive from friends, family members, or others that can be put toward your downpayment. Some lenders require a gift letter that states that the money doens’t need to be repaid.

• Retirement Account Withdrawals – in some cases you can pull money from an IRA of 401(k) account, especially up to $10,000 with no penalty for first time homebuyers, though taxes may apply.

• Sale of Assets or Home Equity from Another Property – money you get from selling a car, valuables, or another property. Sale documentation may be required.

• Employer Assistance – some employers offer benefits to help with purchasing a home, including direct down payment support or matched savings programs.

• Down Payment Assistance Programs – local, state, and national programs may offer grants, forgivable loans, or deferred-payment loans to qualifying buyers. These are especially helpful for first time buyers.

Down Payment Assistance in Dayton & the Miami Valley

If saving for a down payment feels out of reach, help is available.
In Dayton and the Miami Valley, qualifying buyers can access programs offering:

• Grants

• Forgivable loans

• Deferred-payment second mortgages

• Matched savings accounts

👉 Read our full guide on Down Payment Assistance »

Frequently Asked Questions (FAQ)

Q: Can I buy a house with no down payment?
A: Yes, VA and USDA loans may offer zero-down financing for qualified buyers.

Q: Does a bigger down payment always save me money?
A: Usually yes, because you borrow less and may get a better rate, but it’s not the only factor — your credit score, income, and loan type matter too.

Q: What’s the minimum down payment in Ohio?
A: Many Ohio buyers use FHA loans (3.5% down) or conventional loans with as little as 3% down. Assistance programs can lower out-of-pocket costs further.

Next Steps

Whether you’re saving up or ready to buy now, we can help you choose the right mortgage and down payment strategy.

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