A down payment can have a couple of different meanings.

More commonly, a down payment is a part of the mortgage process of a residential real estate purchase. It’s the up-front payment a home buyer is usually required to provide in order to secure the borrowed amount from the lender. Some lenders require that consumers make down payments of 20% or more in order to be approved for a mortgage. Although there are exceptions to this amount. Putting down less than 20% for a down payment may cause lenders to require PMI. Some government-insured mortgage programs such as VA (Veterans Affairs) allow for zero down. And FHA (Federal Housing Authority) requires only 3% for a down payment. The amount of the down payment will be unique to the borrower and won’t always be the same in every scenario.

Other forms of down payments may be earnest money deposits. Which are basically a “good faith” deposit that a potential buyer submits to the seller along with a written purchase agreement. The earnest money shows the seller that the buyer is committed to purchasing. It gives the buyer time to secure financing, conduct inspections and get an official appraisal. If the buyer backs out of the contract, the seller usually has the right to keep the earnest deposit. Earnest deposits are held in an escrow account and applied to the closing costs, the mortgage down payment or returned to the buyer.