What is a down payment in the context of real estate transactions?

A down payment in real estate transactions refers to the upfront payment made by the buyer towards the purchase price of a property. This payment is typically expressed as a percentage of the total purchase price and demonstrates the buyer's commitment to the transaction. Making a down payment is a crucial part of the buying process, as it affects the overall financing terms of the mortgage, such as the loan amount, monthly payments, and interest rates.

A larger down payment can also help the buyer avoid private mortgage insurance (PMI) and may result in better loan terms. The down payment not only helps secure the property but also shows the lender the buyer's investment in the property, which can influence loan approval decisions.