Housing & property
Down payment: Definition, Formula and Example
A down payment is the portion of a purchase price paid upfront rather than funded by the base purchase loan.
Scope: General financial concept; examples are hypothetical.
Other names and related labels: Buyer’s upfront purchase contribution.
How it works
A larger payment generally reduces the starting loan amount, but cash needed at closing can also include fees, prepaid items and reserves. Required minimums depend on program and eligibility; a down payment is not a universal guarantee of approval or affordability.
Down payment = purchase price × down-payment fraction; base loan = price − down payment
Financed fees or program-specific mortgage insurance can raise the final loan above this simplified base amount.
15% down on a $300,000 purchase
Ignore financed fees for this first step.
- Down payment: $300,000 × 15% = $45,000.
- Base loan: $300,000 − $45,000 = $255,000.
- On the same value basis, base LTV is 85%.
The down payment is $45,000 and the base loan is $255,000, before any financed charges.
Purchase price equals the value basis; no other liens, closing costs or reserves included.
The worked example uses the assumptions above. Related tools may model a different scope; check their descriptions before comparing results.
Down payment is not the same as all cash needed to buy
Closing costs and ownership reserves are separate. Using all available savings upfront can leave less for emergencies. For auto financing, taxes, fees, rebates and trade-in equity also affect the financed amount.
Explore with a calculator
- Down Payment Calculator
Compare down-payment and base-loan amounts.
- Mortgage Calculator
Include the mortgage’s other financing and ownership assumptions.
- Auto Loan Calculator
Inspect taxes, trade-in equity, rebates and financed vehicle costs.
Sources and checks
Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.
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