Down Payment Loan: How And Where to Get

Down Payment Loan

Whether you have secured savings or have yet to get any funds, it can be overwhelming to secure money to pay off an expensive item. Thanks to the down payment, you can now gain some leverage on your loan requests and pay off your remaining balance in peace.

Borrowers not only get a favorable deal with the creditor but can also negotiate better deals with the seller. So, in this guide, we’ll examine the process of securing a down payment loan, its types, and how much you need to request to apply.

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What Is Down Payment Loan?

A down payment loan is a type of credit people take to pay a portion of the price. It’s the amount you must provide to the creditor to initiate a credit purchase. It can serve as collateral to the lender and as extra security. Otherwise, it can allow the borrower to gain more access to the property or speed up their ownership claims.

It’s usually payable in percentages and ranges between 10% to 25%. Most items or properties don’t mandate down payments, so you don’t necessarily have to take a loan. But it does pose certain benefits, which we will discuss in the later part of this guide.

What Is a Down Payment? 

A down payment is the initial upfront payment you must make for purchasing an item (usually quite expensive ones like houses and cars) on credit. The amount is calculated in percentage and often must be paid in cash or something of equal value while completing the deal.

Once you’ve taken this offer, you might be required to take a loan to balance the sum. Once the down payment is made, you can claim the whole property or parts. This means you can start living in the home or driving the vehicle. The property becomes yours entirely when you complete the outstanding loan.

Example of Down Payments

To further understand the concept behind down payments, we’ll discuss some common examples here.

Example: Suppose John wishes to purchase a house worth $100,000. But so far, he has been able to save only $25,000. John can go to his bank, withdraw his $25,000 savings and use it as a down payment for the house.

This means John had made a 25% down payment. So he can borrow the remaining $75,000 and pay it off with a 10-years mortgage.

How Down Payment Loans Work

The system behind a down payment loan is similar to any other type. The goal is to get extra funds to afford what you need. However, you only get part of the sum of the fees in this case. You’ll only be seeking enough funds to pay a percentage of the price. This is why this option is applicable primarily when you want to purchase expensive items or services.

For example, you can take a down payment loan for a home. You use the extra fund to pay part of the price and then put the rest on a mortgage. For illustrative purposes, if the house is worth $500,000, you can take a down-payment option to settle 10%. That way, you give $50,000 as a down payment while the remaining $450,000 is placed on a mortgage.

How Much Do I Need for a Down Payment?

Most financial institutions recommend budgeting 10-25% for a down payment. However, you stand a better chance of getting approved if you keep it above 20%. This percentage is just a fraction of the sum you have to pay. The actual amount is calculated by converting the rate based on the total amount.

Note: you must convert the down payment to a decimal point.

Down payment (amount) = down payment percentage × total amount

For example, if the total amount is $300,000 requiring a down payment percentage of 20%. Then the total amount will be $60,000 i.e.

Down payment amount = 0.2 × $300,000 = $60,000

Types of Down Payment Loans

There are several types of down-payment loans you can apply for. They aren’t differentiated based on their differences, though. Each has different uses, so you can identify the types based on the item you intend to purchase.

For example, some borrowers would like to purchase a new home, which might make them apply for home equity loans. Meanwhile, others would need it for emergency purchases such as new car bills, education, etc. Once you identify why you wish to make a down payment, you can determine which would be good to apply for.

Home Equity Loan 

A home equity loan is a type of cash credit service for people that own a home. Using the current value of your home, you can have collateral of equal value. This means if your home is worth $100,000, you can also receive an equity loan of $100,000.

So, if you already own a home and would love to get a new one. You can use the old home’s equity to receive a loan that serves as a down payment for your new home. It’s most used by someone with a home and negligible or zero mortgage.


  • Interest rates are often low.
  • Borrowers might get tax benefits.
  • Repayments are predictable.


  • The application process can be daunting.
  • Only available for those who own a home.


The home equity line of credit (HELOC) is another way to get extra funds by leveraging your home. It’s similar to Home equity loans. The major difference is in the manner of getting the funds.

A typical home equity credit gives you a fixed amount at once, while you can use the HELOC over time like a credit card. The credit value replenishes every time you repay your debt. So you can borrow various amounts over a longer period.


  • Low-interest rate compared to other options.
  • Tax benefits are often available.
  • Create monetary security for homeowners.
  • Repayment is quite flexible.


  • Risk of losing a home.
  • Variable rate over time.
  • You might pay ongoing fees.

Personal Loan

Personal Loans are a type of credit available for individuals with no collateral. It’s an excellent option for anyone who seeks lower amounts. It’s also ideal if you seek a lower interest rate than other options.

The process involves checking your credit history and information to know how much you can borrow. So you need to meet more requirements to be eligible for the offer.

You can apply for this credit if you need to make down payments or sort medical bills, education, emergencies, events, etc.


  • No need for collaterals.
  • Lower APRs.
  • More flexibility.
  • Less processing time.
  • The repayment period is often long enough.


  • More requirements for approval.
  • High hidden fees or monthly payments.

Down Payment Assistance Program

Down Payment Assistance Program

If you’re not a fan of loans, you might have several other options but still need to make a down payment with some extra cash. They often give better offers than down-payment loans, especially if you want to avoid staying indebted or have no reliable source of income.

However, each option here might have its drawbacks, so consider this. Check out their features and who they are recommended for, and understand how each works before deciding which to go for. Below are some of the alternative down payment assistance you can get. 


Grants are special government interventions to aid the citizens, boost the economy, or provide public service. This means the citizens will get free funds from the government depending on the economy. Receiving a government grant can be ideal if you live in a rural area.

As long as you’re eligible, you can receive a grant to make down payments on whether you wish to purchase. The process might be stressful before you’re approved, though. But the silver lining here is that you won’t have to repay the funds after.

Forgivable Loans

As the name implies, a forgivable loan is a type that the creditor can forgive for some reason. So if you meet specific requirements or conditions, the lender will allow you to pay only a portion. Meanwhile, the rest of it will be deferred till another time.

You might also have to pay for a whole sum if the lender doesn’t want to forgive parts of it. If this happens, you must only meet some criteria to shift the payment. For example, if you receive a $100,000 loan, you can get $50,000 forgivable. So you only pay $50,000.

Deferred-Payment Loans

This type is similar to the one above. The significant difference is that you won’t be forgiven for the funds. You’ll have to pay for it, but the creditor might extend the time to aid you in this process.

The period might last between a few months to years. But it generally depends on the type of loan you apply for and the criteria the lender sets. You can make monthly payments or skip them for specific months. Note: whether you pay monthly or not, the interest will continue to accrue on loan.

Low-Interest Loans

This is another way to fund your down payment. This assistance program allows you to borrow funds with lower interest than other options. The silver lining is that you will get impressively low APRs throughout repaying. But the repayment terms are short here. You might be required to repay the whole sum after a while.

It’s a good option if you seek extra funds and are okay with paying it back promptly.

Friends or Family Loan

Most people prefer to borrow money from their friends and family when they need emergency funds. Since down payments are mostly emergencies, it’s an excellent source to seek extra funds. However, this is only ideal if you require smaller sums. You might need help if you borrow huge sums from multiple friends.

Aside from the probability of damaging your relationship, you might end up in a difficult situation if your friend or relative requests their money when it’s not suitable for you. They might also feel entitled to whatever you made the down payment for. This may not be a good recommendation if you don’t want to experience these consequences.

Should I Get Down Payment Loan

Should I Get Down Payment Loan?

It all depends on your finance. But down payment loans are a great way to kick off your payments. The more you can deposit as a down–payment when purchasing something, the higher the chances of getting approved for its mortgage. That’s because the lenders will have less risk to worry about.

You should put 20% or more on your mortgage. So when you take a loan to pay this percentage, you can get a lesser interest rate. For example, if the mortgage has a 24% APR, you can save thousands of dollars if you opt for a down-payment loan with lower APRs. So, you pay less interest on the 20% down payment, then continue to repay the mortgage.

While no one might be able to tell you if you should get it, considering the various options available, you might be able to save thousands of dollars. So it’s always a good option to take a loan for your down payment, especially if the payment is huge.

Down Payment Loan: Pros and Cons

Certain privileges come with making a down payment with a loan and you may greatly benefit from these perks. Although it might seem like the best option for you, there are also some drawbacks you should look out for.



Access low-interest loans to save money from your mortgages.

It could incur more costs if you take high-interest loans.

Benefit from deferred payments and pay for a more extended period.

You might have to meet different criteria.

Get gift funds or government benefits when you apply.

You could get tempted and go beyond your budget.

Leverage forgivable loans to make payments.

Risk of losing the home if you can’t keep up with some payments.

Borrowers can qualify for better mortgage offers.

Your money is challenging to liquidate since it’s tied to equity.

You could kiss private mortgage insurance (PMI) goodbye.

You can’t invest the money elsewhere, and the value might decrease as the home loses value.

Speed up your home ownership process.


You can get more equity on the home for other cash purposes.


You stand a chance of making profits if the home increases in value.



  • Can I borrow money for a down payment?

Yes, you can. Various down-payment loans help you pay off parts of the price. You can apply for home equity, personal, or HELOC loans. You might benefit from friends, family, or other assistance too.

  • How long does it take to get a down payment loan?

You can quickly get a downpayment like every other type of loan. The processing and approval period varies, depending on which one you apply for. If you apply for a personal loan, you’ll get it within the processing time for the standard application.

  • Is it possible to get a down payment loan with bad credit?

Having bad credit can limit your chances, but you can certainly get a loan with it. For some options like home equity and home line of credit, you can use your home as collateral, so you won’t need a credit score to get approval. Same way, grants, forgivable loans, and deferred payments can help you get down-payment loans with bad credit.

  • How can I avoid a down payment?

The way to avoid it is to opt for inexpensive products. For example, you can take a loan to pay off the whole sum if the price is low, rather than make down payments on something expensive. 

  • What is the main purpose of a down payment?

A down payment is a form of the initial deposit that a lender takes as a sign of commitment. It gives the lender less risk and boosts the borrower’s mortgage offers. Down payments allow you to claim part of the item or property before making payments.