A down payment is the difference between the purchase price and the portion of the purchase price financed by a lender.

Often if you make a higher down payment, you will get a better interest rate. A higher down payment may also prevent you from paying Private Mortgage Insurance (PMI.) PMI is a form of insurance required by a lender when the borrower's down payment or home equity percentage is less than 20 percent of the home value. This insurance partially protects the lender if the borrower defaults on the loan.