Down Payment
Synonyms: Deposit، Upfront Payment، Equity Contribution
Last updated: 2026-09-25
Short Definition
A down payment is the part of a property’s price that the buyer pays from their own funds at purchase, with the rest financed by a real estate financier; it equals the property value minus the financing amount.
Overview
Legal Basis
The down-payment ratio rests on Article 11 of the Implementing Regulations of the Real Estate Finance Law issued by Royal Decree M/50 dated 13/8/1433H, which caps financing at 70% of the dwelling’s value with SAMA empowered to change it, and on SAMA Circular No. 391000048362 dated 14/1/2018, which raised the cap to 90% for citizens’ first home and kept 70% and 85% for second and subsequent homes. The purchase is subject to the 5% Real Estate Transaction Tax under its law issued by Royal Decree M/84 dated 19/3/1446H, with the State bearing the tax for an eligible citizen’s first home on up to SAR 1,000,000 of the price. The Off-Plan Sale and Lease of Real Estate Projects Law (M/44) governs escrow accounts for off-plan projects.
Practical Example
A citizen is buying his first home, an apartment in Jeddah priced at SAR 900,000. The minimum down payment is 10% (SAR 90,000) if 90% of the price is financed. But the accredited valuer valued it at SAR 870,000, so the financier lent 90% of the lower value — SAR 783,000 — raising the required down payment to SAR 117,000 (900,000 − 783,000). The Real Estate Transaction Tax (SAR 45,000) is borne by the State because the price is under SAR 1 million and he obtained a first-home certificate, but he still owes 2.5% brokerage (SAR 22,500) if agreed, plus financing fees. So he needs about SAR 140,000 in cash, not 90,000.
Common Mistakes
- ✗Assuming a 10% down payment applies to any property, although that ratio is limited to citizens’ first home.
- ✗Calculating the down payment on the purchase price, then being surprised when the valuation comes in lower and the required amount rises.
- ✗Overlooking extra cash needs such as brokerage, financing and valuation fees, and Real Estate Transaction Tax above the supported limit.
- ✗Draining all savings into the down payment with no reserve for emergencies or maintenance.
- ✗Paying an off-plan project outside its escrow account or to an unlicensed developer.
International Differences
Down-payment requirements vary widely: in the US they can fall to 3.5% on government-backed FHA loans with mortgage insurance, in the UK 5%–10% is common for first-time buyers, in the UAE the central bank requires larger down payments from non-nationals, and in Turkey the ratio follows banking-regulator caps by home value. The Saudi system stands out by explicitly tying the low minimum (10%) to a citizen’s first home, with government support for Real Estate Transaction Tax on the first home.
