We get this question a lot from our clients: What’s the difference between closing costs and a down payment when purchasing a home? Here’s Mike Zubretsky, Principal Broker & Owner of Venture One Realty of CT to explain the difference between the two. Venture One Realty is a Full Service 1% Listing Fee Real Estate Brokerage in Connecticut. Call us at 860.644.7898 or visit us online at ventureonerealtyllc.com.
Closing Costs vs Down Payment
The down payment on a home is not the same money as the money you will need to pay for closing costs even though they both help you buy a home.
When you are shopping for a house, you may be focused more on gathering the money you will need for a down payment then you are worrying about coming up with the cash to cover closing costs.
Both play a key role in a successful home purchase.
Closing costs cover fee’s, taxes, and administrative expenses required to process the purchase of your home.
Down payments usually consist of two parts
The first part of the down payment is your deposit, also called earnest money, that you put in escrow when you first make an “offer to purchase” on a home.
The second part is the remainder of the down payment which you give the lender when you make the purchase at closing.
The Down payment
The money that makes up the down payment must be paid during the home buying process.
Whatever money is paid out as either earnest money or a down payment is deducted from the purchase price of the home.
Any amount that remains will typically get folded into your loan.
The closing costs
These are an assortment of taxes and fees charged by government entities, local municipalities, and administrative groups handling your loan and processing your real estate purchase paperwork.
They are very different from the down payment
Closing costs will usually include fees and charges relative to the type of loan you have and the services required to process that specific loan.
FHA Loans and down payments allow most closing costs to be included in the loan which can be very helpful if you don’t have the cash required to close.
When Do You Pay the Closing Costs and the Down Payment?
The closing costs are paid at closing, and the down payment is due at closing.
Though both the down payment and closing costs can be paid via the same check.
Do Closing Costs Include a Down Payment?
No, your closings costs won’t include a down payment.
Some lenders will combine all of the funds required at closing and call it “cash due at closing” which bundles closing costs and the down payment amount — not including the earnest money.
It’s also important to note that closing costs do not count towards the minimum down payment amount required by certain loan types.
Is the Down Payment Included in the Loan Amount?
Your down payment is not included in the loan amount.
Both parts of the down payment are deducted from the purchase price —
what remains is the loan amount.
When making a home purchase, the down payment is the total you’ll be required to pay to satisfy the requirements of the loan.
How to Pay the Down Payment on a House at Closing
Usually, a certified check or a cashier’s check is used to cover the down payment at closing.
Your Real Estate Attorney or lender will usually get you a total amount due in the days before closing.
I hope this discussion has been helpful.
Please feel free to contact me with any questions you may have so that I may help you in the purchase of a home.
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We are a full service Real Estate Agency that will manage the entire home selling process from listing to closing. You get everything you would expect from a traditional Real Estate Agent but with the added benefit of working with a technology enabled and customer focused team of Agents. Our results speak for themselves.