Final answer:
The cash down payment required for a mortgage, also known as equity, is generally expected to be around 20% of the home's purchase price. Equity is the difference between the market value of the home and the remaining mortgage balance. Lower down payments are possible but typically require additional mortgage insurance.
Step-by-step explanation:
When a mortgage loan is obtained, the cash down payment required, also known as equity, typically averages to about 20% of the property's purchase price. However, this can vary based on lender requirements and the borrower's financial situation. For instance, if a house is purchased for $100,000, a 20% down payment would be $20,000, and the borrower would take out a mortgage for the remaining $80,000. The mortgage down payment is significant as it affects the equity, mortgage insurance requirements, and loan amount.
Equity represents the market value of the property minus any outstanding mortgage balance. As an example, if Fred's house is valued at $200,000 and he owes $180,000 on his mortgage, his equity in the home is $20,000. Over time, paying down the mortgage increases equity, as does an appreciation in the house's market value.
It is also possible to take advantage of lower down payment options such as 0-3.5%. However, these options often require the buyer to get mortgage insurance, adding to the cost over time. For many Americans, home equity is a significant portion of their financial assets, reflecting in the trillions held in U.S. household equity.