What is the down payment?
In a residential real estate transaction, what is your down payment?
The short answer is that your down payment is the amount you are not mortgaging.
Let's say you are purchasing a property for $500,000. Your offer indicates your loan amount is 80% of the purchase price or $400,000. This means that your downpayment - the amount you are not mortgaging - is $100,000 or 20%.
Let's walk through this example of a $500,000 purchase with a loan amount of $400,000.
You write a check for $1,000 at the time of making the offer. This check is known as the binder check.
Your offer is accepted (congratulations!) and a week later you write a second check for $24,000 when the offer is replaced by the purchase and sale agreement (the p & s).
First check ($1,000) + second check ($24,000) is $25,000.
$25,000 is 5% of $500,000.
5% is the amount you have put down at purchase and sale.
Remember, though, that the down payment is the amount you are not mortgaging.
In this example the downpayment is $100,000 or 20% of the purchase price.
Therefore, at the time of the closing, you will need to have another $75,000 to add to the $25,000 you put down at purchase and sale. $75,000 + $25,000 is $100,000. $100,000 is the down payment in this example. It is 20% of purchase price of $500,000.
The confusion with regard to the down payment in our marketplace stems from the second check due upon signing of the purchase and sale. Oftentimes, buyers think of the purchase and sale check as the down payment. However, to be clear, the down payment is the amount you are not mortgaging.
And what if you are an all cash buyer who is not getting a mortgage? Well, that is amazing:)! The pure all cash buyer who is not getting a loan may think of their down payment as the amount they are putting down at the signing of the purchase and sale, as essentially there is no amount that is not being mortgaged.
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