n.
A partial payment made at the time of purchase, with the balance to be paid later.
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down payment
American Heritage Dictionary:
down payment |
n.
A partial payment made at the time of purchase, with the balance to be paid later.
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Barron's 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.
Barron's Real Estate Dictionary:
down payment |
The amount one pays for property in addition to the debt incurred.
See initial equity.
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.
See initial equity.
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.
| Dower, Double-Wide | |
| Downzoning, Dragnet Clause |
Roget's Thesaurus:
down payment |
West's Encyclopedia of American Law:
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.
Dictionary of Cultural Literacy: Economics:
down payment |
A payment in part made at the time of purchase of a good, with the promise to make full payment later.
Investopedia Financial 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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Random House Word Menu:
categories related to 'down payment' |
- Banking and Financial Services - down payment: initial payment required on credit purchase
- Mortgages and Financing - down payment: initial cash sum paid at time of real estate purchase; front money
Wikipedia on Answers.com:
Down payment |
 |
This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (December 2011) |
Down payment (or downpayment) is a payment 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 remaining balance on the loan, including fees and interest added. A down payment in this case reduces the lender's risk to less than the value of the collateral, making it more likely that the lender will recover the full amount in the event of default.
The size of the down payment thus determines the extent to which the lender is protected against the various factors that might reduce the value of the collateral, as well as lost profits between the time of the last payment and the eventual sale of the collateral.
Furthermore, making a down payment demonstrates that the borrower is able to raise a certain amount of money for long-term investment, which the lender may desire as evidence that the borrower's finances are sound, and that the borrower is not borrowing beyond his or her means.
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, down payments for home purchases typically vary between 3.5% and 20% of the purchase price.[2] The Federal Housing Administration, or FHA has advocated lower down payments since its inception in 1934, and currently, borrowers that qualify for an FHA loan pay only 3.5% for a down payment. With rising home prices in the years from 2000 to 2007, lenders were willing to accept smaller or no down payment, (either through 100% Financing, seller-assisted down payment assistance, government down payment providers, or by providing a combination of an 80% 1st and 20% second mortgages), so that more individuals could purchase homes as their primary residences. This trend has been largely reversed since that time.[3][citation needed] However, in the United States, the VA or Department of Veteran's Affairs, offers 100% financing for qualifying veterans. There are also numerous state and local municipality programs that vary in down payment amounts from zero to $1000 down.
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
- ^ "HUD"
- ^ 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.
See also
This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)
Related topics:
 | deposit |
| Minimum Down Payment |
| Capitalized Cost Reduction (finance term) |
Related answers:
 | How do you get a home loan with no down payment? Read answer... |
| How can you be able to make a down payment? Read answer... |
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Copyrights:
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 | American Heritage 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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| Barron's Banking Dictionary. Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved. Read more |
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| Barron's Real Estate Dictionary. Dictionary of Real Estate Terms. Copyright © 2008 by Barron's Educational Series, Inc. All rights reserved. Read more |
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| Roget's Thesaurus. Roget's II: The New Thesaurus, Third Edition by the Editors of the American Heritage® Dictionary Copyright © 1995 byHoughton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. Read more |
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| West's Encyclopedia of American Law. West's Encyclopedia of American Law. Copyright © 1998 by The Gale Group, Inc. All rights reserved. Read more |
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| Dictionary of Cultural Literacy: Economics. 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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| Investopedia Financial Dictionary. Copyright ©2010, Investopedia.com - Owned and Operated by Investopedia US, A Division of ValueClick, Inc. All rights reserved. Read more |
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| Random House Word Menu. © 2010 Write Brothers Inc. Word Menu is a registered trademark of the Estate of Stephen Glazier. Write Brothers Inc. All rights reserved. Read more |
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| Wikipedia on Answers.com. 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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Mentioned in
- deposit
- Minimum Down Payment
- Capitalized Cost Reduction (finance term)
- Private Mortgage Insurance (PMI) (finance term)
- building society
- false step (Idiom)
- Bridal Registry Mortgage
- in escrow (Idiom)
- Buy on Margin (in banking)
- Piggyback Loans (finance term)
- High-Ratio Mortgage/Loan
- Second Mortgage
- Stock Subscription (in accounting)
- Earnest Money (finance term)
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