down payment
| Dictionary: down payment |
n.
A partial payment made at the time of purchase, with the balance to be paid later.
| 5min Related Video: down payment |
| Investment Dictionary: Down Payment |
A type of payment made in cash during the onset of the purchase of an expensive good/service. The payment typically represents only a percentage of the full purchase price; in some cases it is not refundable if the deal falls through. Financing arrangements are made by the purchaser to cover the remaining amount owed to the seller.
Making a down payment and then paying the rest of the price through installments is a method that makes expensive assets more affordable for the typical person.
Investopedia Says:
For example, because houses are extremely expensive assets, home buyers typically pay down payments that equal 5-25% of the total value of a home. The remaining 75-95% of the price will be covered by a bank or other financial institutions through a mortgage loan.
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| Banking Dictionary: Down Payment |
Initial good faith deposit made by a home buyer, indicating intention to purchase real estate offered for sale and obtain financing from a bank or mortgage company. Also called a Good Faith deposit.
| Real Estate Dictionary: Down Payment |
The amount one pays for property in addition to the Debt incurred.
Example: Abel buys a house for $250,000. He arranges a $200,000 First Mortgage and a $20,000 Second Mortgage. The down payment he needs is $30,000, which he pays in cash at Closing.
| Thesaurus: down payment |
| Law Encyclopedia: Down Payment |
This entry contains information applicable to United States law only.
A percentage of the total purchase price of an item that is proffered when the item is bought on credit.
In an installment sales agreement, a buyer is required to pay part of the total price, usually in cash, and later pays the balance through a number of regularly scheduled payments.
A down payment is sometimes known as earnest money, or a sum of money that a buyer pays upon entering a contract to indicate a good faith intention as well as an ability to pay the balance.
| Economics Dictionary: down payment |
A payment in part made at the time of purchase of a good, with the promise to make full payment later.
| Wikipedia: Down payment |
Down payment (or downpayment) is a term used in the context of the purchase of expensive items such as a car and a house, whereby the payment is the initial upfront portion of the total amount due and it is usually given in cash at the time of finalizing the transaction.[1] A loan is then required to make the full payment.
The main purpose of a down payment is to ensure that the lending institution can recover the balance due on the loan in the event that the borrower defaults. In real estate, the asset is used as collateral in order to secure the loan against default. If the borrower fails to repay the loan, the lender is legally entitled to sell the asset and retain a portion of the proceeds sufficient to cover the original amount of the loan.
By requiring a down payment in advance, the lender greatly increases the chance that any such future sale would be able to cover the full amount of the loan, because such a sale only requires the lender to recover the difference between the original selling price and the amount of the down payment, as opposed to the entirety of the original selling price.
If the borrower is unable to pay off the loan in its entirety, he/she forfeits the down payment amount.
Amounts
In the United States home purchases they typically vary between 5% and 20% of the purchase price. With rising home prices in the years from 2000 to 2007, lenders were willing to accept smaller down payments, (sometimes 3% or even zero by providing a combination of 80% and 20% mortgages), so that more individuals could purchase homes as their primary residences. This trend has been reversed since that time.[2][citation needed]
For car purchases the down payment could be anywhere between 3% and 13%. Similar for purchases of comparable price.
There is more risk for lenders when individuals purchase a home as an investment property. Therefore the lender may charge a higher interest rate and expect a higher down payment.
References
- ^ "Down payment", in Dictionary.com
- ^ Hawn, Carleen (2005-09-01). "The low-down-payment empire". CNN Money. http://money.cnn.com/magazines/business2/business2_archive/2005/09/01/8356509/. Retrieved 2008-09-05.
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 | Dictionary. The American Heritage® Dictionary of the English Language, Fourth Edition Copyright © 2007, 2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved. Read more |
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| Investment Dictionary. Copyright ©2000, Investopedia.com - Owned and Operated by Investopedia Inc. All rights reserved. Read more |
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| Banking Dictionary. Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved. Read more |
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| Real Estate Dictionary. Dictionary of Real Estate Terms. Copyright © 2004 by Barron's Educational Series, Inc. All rights reserved. Read more |
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| Thesaurus. Roget's II: The New Thesaurus, Third Edition by the Editors of the American Heritage® Dictionary Copyright © 1995 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. Read more |
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| Law Encyclopedia. West's Encyclopedia of American Law. Copyright © 1998 by The Gale Group, Inc. All rights reserved. Read more |
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| Economics Dictionary. The New Dictionary of Cultural Literacy, Third Edition Edited by E.D. Hirsch, Jr., Joseph F. Kett, and James Trefil. Copyright © 2002 by Houghton Mifflin Company. Published by Houghton Mifflin. All rights reserved. Read more |
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| Wikipedia. This article is licensed under the Creative Commons Attribution/Share-Alike License. It uses material from the Wikipedia article "Down payment". Read more |
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