A buyer purchases a $400,000 house and pays $80,000 in cash at closing. That $80,000 is the down payment. It represents the buyer’s initial equity and reduces the amount that must be borrowed.

Conventional loans often require between 5 and 20 percent down. Government-backed programs may allow lower amounts. Larger down payments usually produce better interest rates and eliminate private mortgage insurance. Gifted funds and down-payment assistance programs can help eligible buyers.

The size of the down payment affects monthly payments, loan-to-value ratio, and risk for the lender. Buyers who stretch to maximize the down payment may leave themselves short of reserves for repairs or emergencies. Balancing the down payment against overall financial health is part of sound purchase planning.

Every percentage point put down is a percentage point that does not have to be financed.