Minimum Down Payment

DEFINITION of 'Minimum Down Payment'

The minimum cash contribution that must be made by a borrower toward the purchase of a home in order to qualify for a mortgage. The minimum down payment requirements vary by loan program and from lender to lender.

Typically, a minimum down payment of 20% of the total loan balance is required to qualify for a loan without having to pay private mortgage insurance.

BREAKING DOWN 'Minimum Down Payment'

When a borrower has cash in excess of the minimum down payment requirement for a loan, he or she should make a risk-based decision on whether the excess cash should also be put toward the down payment or used elsewhere. All sides should be considered, including the probability of expected returns and the risks of "downside" outcomes in investments.

The bottom line is, making less than a total possible down payment adds leverage, which adds to the overall risk: the more leverage employed, the more extreme both positive and negative returns will be.

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