What is Down Payment?
The upfront portion of a purchase you pay yourself, with the rest financed by a loan.
The down payment reduces the loan amount, your EMI, and total interest, and often improves your rate. Lenders set a minimum (e.g. 10–20%); transaction costs are usually extra.
Example
20% down on a 5,000,000 home is 1,000,000.
Why the down payment matters
The down payment is the part of a purchase you pay upfront from your own funds; the lender finances the rest. A larger down payment reduces the loan amount, which lowers your monthly payment, your total interest, and your loan-to-value ratio — often earning you a better rate and avoiding mortgage insurance.
Typical minimums
Minimum down payments vary by country and product: many home loans expect roughly 10–25%, while car loans and some first-home schemes allow less. Regulators sometimes set a floor. Putting down more than the minimum, if you can, is usually the cheapest way to reduce the lifetime cost of the loan.
A smaller down payment, worked out
Instead of 20% down, take a buyer putting just 5% down on a $350,000 home: that's $17,500 down and a $332,500 loan. At 6.5% over 30 years, the EMI is about $2,102/month, versus roughly $1,769/month with 20% down ($280,000 loan). The lower-down-payment buyer pays about $333 more every month, plus — in many markets — an added private mortgage insurance (PMI) premium on top, because the loan exceeds 80% of the home's value. That gap illustrates why lenders and buyers both watch the down payment percentage closely: it isn't just about affording the upfront cash, it changes the monthly cost for the life of the loan.
The 20% line, and why it isn't a hard rule everywhere
20% down is often treated as a benchmark because, in the US, conventional mortgage borrowers who put down less than 20% are typically required to carry private mortgage insurance (PMI) until enough equity builds up, per the Consumer Financial Protection Bureau. But 20% isn't a universal minimum: some government-backed programs allow much smaller down payments, and VA-backed loans for eligible US veterans and service members can require no down payment at all, as long as the sale price doesn't exceed the home's appraised value. Down payment minimums are set by the lender or the loan program, not by a single global rule, so what counts as "normal" varies by country and by loan type.
How the down payment connects to LTV
The down payment and loan-to-value ratio (LTV) are two sides of the same number: down payment percentage plus LTV always add up to 100% of the purchase price. A 15% down payment is the same thing as an 85% LTV loan. Lenders often price their rates and mortgage-insurance requirements directly off the LTV, which is why increasing your down payment even a little can cross a threshold that changes your rate.
FAQ
Can you get a mortgage with 0% down?
In some countries, yes, for specific borrower groups. In the US, VA-backed loans for eligible veterans and active-duty service members can require no down payment at all, as long as the sale price doesn't exceed the home's appraised value, per the Department of Veterans Affairs. That's the exception, not the norm — most conventional and government-backed loan programs still require some down payment.
Does a bigger down payment always mean a better deal overall?
Usually, but not automatically. A bigger down payment lowers your loan amount, EMI and interest cost, and can help you avoid mortgage insurance — but it also ties up cash that could otherwise cover an emergency fund, closing costs, or a higher-return investment. The right down payment size depends on your other savings and goals, not just on minimizing the loan's cost.
Sources
- CFPB — What is private mortgage insurance? (accessed 26 September 2026)
- VA.gov — VA-backed Purchase Loan (accessed 26 September 2026)