How is a down payment typically calculated?

A down payment is typically calculated as a percentage of the total property price. This percentage can vary depending on factors such as the type of mortgage, the lender's policies, and the borrower's creditworthiness. For example, conventional loans might require down payments ranging from 5% to 20% of the purchase price, while government-backed loans, such as FHA loans, may allow for lower down payments, sometimes as low as 3.5%.

Calculating the down payment as a percentage helps both buyers and lenders to assess the affordability and the buyer's investment in the property; the higher the percentage, the more equity the buyer has in the home at the start. This calculation method encourages responsible borrowing and helps mitigate lender risk.

In contrast, the fixed dollar amount set by the lender does not reflect the variability of property prices or personal circumstances. A flat fee determined by local regulations does not typically apply to down payments, as these are more commonly negotiated between buyers and sellers or set by lenders. Lastly, a random value set by the seller could lead to inconsistent down payment requirements, making it impractical and unreliable as a standard financial practice. Thus, calculating the down payment as a percentage of the total property price is the most widely accepted and understood method