Down Payment

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When you want to buy something but can't afford to pay for it all at once, you will probably need to get a loan. The lender will often require that, as a condition of the loan, you contribute some money yourself toward the purchase price. The money you contribute is called the down payment. When buying a house you may need to "put down" anything from 5 percent to 20% of the total cost (although sometimes mortgage lenders require no down payment). Whatever percentage you put down becomes your equity in that property or car (or whatever you're buying), and as you pay back more of the loan, your equity increases. If you put down less than 20% as a down payment for a house, mortgagees (lenders) will often require you to buy mortgage guarantee insurance, which will protect them if you default on the loan.