As a first-time home buyer, there are a lot of things to consider when shopping the market. Location, neighborhood, and the rules and regulations of an HOA are a few that come to mind. However, there’s a bigger issue at hand that will likely wind up topping the list: the down payment. Buying a home is a big step and usually requires additional funds from banks and lending institutions. If you opt for a mortgage, you’ll probably need to pay some of the total cost upfront.

A down payment on a home is not so different from one you’d make on a car. The amount is determined by the total size of the loan and the len

\der you choose to work with. However, a home down payment does have some differences. Home loans vary and typically depend on the type of home loan you choose. While there are standard percentages, the numbers can change depending on factors such as closing costs and lender’s fees.

Understanding the down payment and how the amount is calculated is a crucial step in the home-buying process. Not only can it help with your overall budget, but it can also better your understanding of the mortgage and future payments. In this guide, we’ll explain what a down payment is, average costs, and down payment options to consider.

What Is a Down Payment

Put simply, a down payment is the money you’ll need to pay upfront to secure your home. It’s most often a percentage of the total cost of the home and solidifies your commitment to the purchase. If you’re a first-time home buyer, you’re in luck, as there are many loans designed to help make the process and your down payment manageable. With these kinds of loans, the terms and conditions of the down payment tend to be more favorable and forgiving.

Since the down payment will be a large and upfront remittance, you should consider the way you’d like to pay. Certified funds, such as a cashier’s check or wire transfer, are the most common, but there are other options. Talking with your realtor and property seller will be your best bet for finding the most suitable method of payment.

Average Down Payment Costs

The amount of your down payment is determined by the size of your home loan. Traditionally, that amount has been 20% of the total purchase price. However, with a wide range of loan styles available, the amount can now vary. According to data from the National Association of Realtors, the average down payment cost has dropped significantly to 8% and can even go as low as 3%. Of course, your down payment will affect your monthly mortgage payments.  Putting down more money initially ensures that you’re mortgage payments will be lower, allowing you to pay less interest over time.

Down Payment Options to Consider

With so many upfront costs, a down payment can feel like a burden. For this reason, many people turn to additional options to help lighten the load. Below are a few of the most common choices to consider when gathering funds for your down payment.

Housing Finance Agencies (HFAs)

HFAs are non-profit organizations that provide services and education to make the home buying process more affordable. In addition to being a wealth of knowledge for first-time home buyers, they offer programs that help you secure lower interest rates and down payment assistance.

Grants

A grant can provide funds with no interest fees or payback requirements. Given that, they may be hard to come by. There are usually a rigid set of qualifications to secure a grant, but they can be a great source for additional money for your down payment.