In a real estate transaction, what does "down payment" signify?

In a real estate transaction, the term "down payment" signifies the initial payment made by the buyer towards the purchase price of the property. This amount represents a portion of the total price and is typically paid upfront at the closing of the transaction. The down payment is crucial because it reduces the total amount that needs to be financed through a mortgage loan and demonstrates the buyer's commitment to the purchase.

The size of the down payment can vary depending on the terms of the financing and the buyer's financial situation, but it is generally a percentage of the property's purchase price. A larger down payment can also result in better loan terms, such as lower interest rates, as it indicates to lenders a lower risk scenario.

In contrast, the total cost of the property encompasses all expenses related to the purchase, including financing and fees, while the amount funded by the mortgage is the loan amount after the down payment has been subtracted. Closing costs, on the other hand, are additional fees incurred during the transaction process and are separate from the down payment itself. Thus, the option reflecting the initial payment by the buyer is the most accurate representation of what "down payment" indicates in a real estate transaction.