The average person will take 6 months or so to go from looking to actually buying a home under perfect conditions. If there are any issues, that time frame can be doubled or tripled.

Buying a house is a complex and very serious undertaking and is the most expensive decision that most people will make.

Take the time to learn everything you can about down payments, monthly mortgage payments, and how your loan setup will work before you get serious about hunting for the house of your dreams.

How does a down payment work?

A down payment is the amount of money that you pay upfront toward the final agreed-on purchase price. The amount of your down payment will vary by a number of factors.

  • The amount that is being required by mortgage lenders at that time.
  • The type of loan that you are applying for.
  • The monthly payments that you would like to end up paying.
  • Your credit rating.
  • The overall value of the loan vs. property.

Additional factors may play a role as well. Typically, the most important will be the type of loan plus your credit rating. (Related: You can get you free credit score from Credit Karma or Credit Sesame. Find out your score if you don’t know it, and keep monitoring it for any suspicious activity.)

According to NerdWallet, the average down payment is around 7% but some home buyers may choose to put down a large down payment for a number of reasons.

  • The larger down payment can make a stronger offer for the house of your dreams especially if there is a lot of competition for it
  • A larger down payment means smaller monthly payments for most loans
  • Paying more upfront can give you far better interest rates and more favorable loan options

Mortgage lenders will likely compete for your business giving you several loan options to choose from to get the most value for your money and may mean being able to afford a home beyond what you had originally planned for.

What is a down payment for example?

An example from Rocket Mortgage uses the figure of $300,000 for the house and a down payment amount of 10% of that ($30,000). Over a period of 30 years, the payment would be $750 not counting the interest, the mortgage insurance, the loan fees, and other costs.

Because of the number of variables that are important to consider, it is wise to use a mortgage calculator to get an idea of what your down payment should be and how much you will be paying per month.

Comparing lending rates, interest rates, and trying to get a lower down payment can be more easily accomplished if you can do it in one place. Lending Tree allows you to compare the interest rate, the minimum down payment, and the monthly payment of various types of loans from different lenders.

What is the down payment on a house?

As explained, the down payment is just the amount that you pay at the beginning of the loan process. It is only one payment that you may make while trying to buy a house.

You may need to put down earnest money which shows the realtor and mortgage companies that you are serious, or “in earnest” about buying this house. Earnest money may be necessary with a property with multiple bidders.

You get your earnest money back if your offer is not accepted. If it is accepted, it will go towards your down payment. You may not be able to get your earnest money back if you are past deadlines or if there are stipulations in your contract that allow the sellers to keep it.

Is the down payment refundable?

Having to back out of buying a house can be heartbreaking in and of itself. Learning that you are about to be out thousands of dollars can be devastating. Because the laws vary by the state it is impossible to say yes or no to this question.

  • The downpayment may be returned under extenuating conditions unless there is a contract already in place.
  • Some lenders will allow the down payment to be refunded if something changes in loan status before closing is set.
  • The downpayment may be considered non-refundable if the closing process has already started.

What are the benefits of a down payment?

While there are several loan types that allow you to have a home loan without requiring a down payment, most will require one.

Types of loans with less stringent or no down payment requirements:

  • Loans from the Federal Housing Administration or FHA
  • VA loans
  • Fannie Mae and Freddie Mac loans – may not require a down payment or may provide down payment assistance
  • USDA loans

The benefits of a down payment of any size:

  • You pay less interest over the life of the loan.
  • Lower monthly payments are possible.
  • You may be able to get a bigger loan.

What are creative ways to get free down payment money?

There are many ways to goose up your nest egg before it is time to make a down payment. Here are some creative ways to get more green for your dream.

Swagbucks

Join Swagbucks for free.

  • Get a welcome bonus just for signing up.
  • Earn Swagbucks for taking surveys, watching videos, playing games, and shopping.
  • Save on items you will need for your big moving day from thousands of merchants.
  • Refer friends and earn 30 Swagbucks plus a portion of their earnings too.

Trustpilot

Inbox Dollars

Join Inbox Dollars for free.

  • Earn $5 just for creating an account.
  • Take surveys, upload receipts, play games, watch videos, and more to earn cash.
  • Refer friends and earn rewards.

Upromise

More than just that college savings site, Upromise can help you get that down payment money.

  • Signing up is free and if you link a 529 savings account or other eligible savings account, you will get a $30 sign-up bonus.
  • Link your credit and debit card accounts and earn cash back for purchases on everything from meals out after a hard day of house hunting to moving supplies like boxes and tape.

Get a Side Hustle

  • Deliver food
  • Deliver groceries
  • Walk dogs or pet sit
  • Clean houses ($30+ an hour cash and your own hours)
  • Freelance writing work
  • Drive for Uber or Lyft
  • Pick up around-the-house gigs on Task Rabbit: paint rooms, crush and haul away cardboard boxes, shovel, weed, assemble IKEA furniture, and more.

Sell Stuff

Moving is expensive. Anything you can do to lessen the load is a bonus.

  • Sell anything that you won’t need (realistically) in your new home.
  • Sell anything that you haven’t worn in the past 4 seasons.
  • Sell items that would be impossible to safely move.
  • Sell old “junk” that’s gathering dust – old tools, old sports gear, old toys.

If you can squeeze in some additional time for a side hustle, you can but remember that the process of buying a home can be stressful and time-consuming so use caution. Focus on getting the right house, the right loan, and the right downpayment.

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