What is Down Payment?
The down payment is an initial payment for the purchase of an item on credit. In simple terms, it is an advance payment for an expensive purchase. The payment represents a percentage of the total purchase price. You would pay the initial upfront payment called the down payment for the purchase of a car or a house.
You would make the down payment out-of-pocket instead of borrowing the amount. It is wise to make a down payment when availing of a loan even if you don’t have to. You save on interest payments across the tenure of the loan. It would be a good idea to make a down payment of 15%-20% of the cost of an expensive asset such as a house when availing a home loan. You may repay the remaining loan amount over time through EMIs or equated monthly instalments.
Lenders may specify a minimum amount for the down payment. You could make a small or large down payment depending on your affordability. If you make a large down payment, you will be able to comfortably repay the equated monthly instalments as you have to repay a lower amount of loan.
Your loan would quickly be approved, and you would also save on the loan processing fees. However, a large down payment would lock your funds resulting in lower liquidity, and you would have to cut back on spending. You could face a shortage of funds during a financial emergency. You must decide on the down payment before approaching the bank for a loan.
What is the Down Payment Calculator?
A down payment calculator is a utility tool that shows you the amount of down payment you must make while availing of a loan. It also helps you to calculate the EMIs on your loan.
The down payment calculator consists of a formula box, where you enter the total cost of the asset, the percentage of the down payment, the rate of interest on the loan, the processing fees, and the loan tenure in years. The down payment calculator shows you the amount of down payment and the loan EMI to repay the loan.
How does Down Payment Calculators work?
The down payment calculator will calculate the down payment you must make before you take the loan. It will also display the loan EMIs on a car loan or a home loan.
For example, you want to buy a house for Rs 50,00,000. You would make a down payment of 20% or Rs 50,00,000 * 0.2 = Rs 10,00,000.
The bank would sanction the home loan of Rs 40,00,000. You have processing fees of 1% of the loan amount or Rs 40,00,000 * 0.01 = Rs 40,000.
The total amount you need for the down payment is Rs 10,00,000 + Rs 40,000 = Rs 10,40,000.
Total down payment = Rs 10.4 lakh.
You must calculate EMIs on the home loan using the formula:
EMI amount = [P x R x (1+R)^N]/[(1+R)^N-1] where P, R, and N are the variables.
This also means that the EMI value will change every time you change any of the three variables.
‘P’ stands for the Principal Amount. It is the original loan amount given to you by the bank on which the interest will be calculated. ‘R’ stands for the Rate of Interest set by the bank. N is the Number of Years given to you for the repayment of the loan.
As home loan EMIs are paid each month, the duration is calculated in the number of months. So, if you take a home loan of Rs 40 lakh with an interest rate of 10% for 25 years the EMI will be:
P = Rs 40 lakh, R = 10/100/12 (You convert to months), N = 25 years or 300 months.
Home Loan EMI = [40,00,000 x 10/100/12 x (1+10/100/12)^300] / [(1+10/100/12)^300-1]
Home Loan EMIs = Rs 36,348.
FAQs
The formula looks like this: Down Payment = Purchase Price × Down Payment Percentage. Down Payment = $200,000 × 10%
How much of a down payment do you need for a $300 000 house? ›
How much down payment for a $300,000 house? The down payment needed for a $300,000 house can range from 3% to 20% of the purchase price, which means you'd need to save between $9,000 and $60,000. If you get a conventional loan, that is. You'll need $10,500, or 3.5% of the home price, with a FHA loan.
Is $10,000 enough for a down payment? ›
To purchase a $200,000 house, you need a down payment of at least $40,000 (20% of the home price) to avoid PMI on a conventional mortgage. If you're a first-time home buyer, you could save a smaller down payment of $10,000–20,000 (5–10%). But remember, that will drive up your monthly payment with PMI fees.
How much is 20 down on a 500 000 house? ›
Here's a rough estimate of the income you might need to afford a $500,000 home: Down Payment: 20% of $500,000 is $100,000. Loan Amount: $500,000 - $100,000 (down payment) = $400,000.
How much house can I afford with a 30k salary? ›
One rule of thumb is to aim for a home that costs about two-and-a-half times your gross annual salary. If you have significant credit card debt or other financial obligations like alimony or even an expensive hobby, then you may need to set your sights lower.
How much do I need to make to buy a $300k house with an FHA loan? ›
How Much Income Do You Need to Buy a $300,000 House? With a 5% down payment and an interest rate of 7.158% (the average at the time of writing), you will want to earn at least $6,644 per month – $79,728 per year – to buy a $300,000 house. This is based on an estimated monthly mortgage payment of $2,392.
How much house can I afford if I make $36,000 a year? ›
On a salary of $36,000 per year, you can afford a house priced around $100,000-$110,000 with a monthly payment of just over $1,000. This assumes you have no other debts you're paying off, but also that you haven't been able to save much for a down payment.
What can I afford on a $50,000 salary? ›
A person who makes $50,000 a year might be able to afford a house worth anywhere from $180,000 to nearly $300,000. That's because your annual salary isn't the only variable that determines your home buying budget. You also have to consider your credit score, current debts, mortgage rates, and many other factors.
How low is too low for a down payment? ›
Some lenders require a 5 percent minimum. Keep in mind, too, that to avoid PMI, you'll need to put down at least 20 percent. If you can't afford that high of a down payment, though, know you won't pay PMI forever. Once you reach 20 percent equity in your home, you can request that your lender remove PMI from your bill.
How much house for $3,500 a month? ›
A $3,500 per month mortgage in the United States, based on our calculations, will put you in an above-average price range in many cities, or let you at least get a foot in the door in high cost of living areas. That price point is $550,000.
How Much House Can You Afford?
| Monthly Pre-Tax Income | Remaining Income After Average Monthly Debt Payment | Estimated Home Value |
|---|
| $4,000 | $3,400 | $138,000 |
| $5,000 | $4,400 | $197,000 |
| $6,000 | $5,400 | $256,000 |
| $7,000 | $6,400 | $313,000 |
4 more rowsMost buyers nowadays have housing payments in excess of 40% of their gross income. By today's standards, even in a 6% to 7% interest rate environment, you can qualify for a $400,000 home with as little as $70,000 of income with a 20% down payment – depending on your property tax and insurance rates.
How do you calculate buy down cost? ›
The difference between the payment amount of the original mortgage and the total annual savings of the buydown program selected equals the total cost of the buydown.
What is a 20% down payment on a $400000 house? ›
For these calculations, though, we are going to assume that you are putting down 20%. Putting down this amount generally means you won't have to worry about private mortgage insurance (PMI), which eliminates one cost of home ownership. For a $400,000 home, a 20% down payment comes to $80,000.
How much is a 20% downpayment on a $200000 house? ›
How much is a down payment on a 200K house? A 20% down payment on a 200K house is $40,000. A 5% down payment is $10,000, and a 3.5% is $7,000. Talk with various lenders to see what you might qualify for.
How much is a downpayment on a $350 000 house? ›
Putting down the standard 20% can help you avoid paying mortgage insurance and interest and could save you thousands of dollars. So you can expect to pay between $10,500 an $70,000 as a down payment on a $350,000 purchase.
