The difference between closing costs and down payment doesn’t really affect the bottom-line dollar amount that’s needed at the closing table. After the escrow officer tallies up the buyer’s debits and credits on the Closing Disclosure or HUD-1 Settlement Sheet (depending on the type of transaction), there will only be one check to bring in when it’s time to sign escrow papers. Understanding the escrow settlement process and the difference between the two amounts can help you look for inaccuracies and ensure that funds are directed to the right place.

Closing Costs

Closing costs are fees associated with the cost of obtaining a home loan and escrow services when closing on a home mortgage. These fees include items such as:

– the appraisal

-lender origination fees

-escrow handling charges

-wire transfer fees, discount points

-lender’s title insurance 

-prepaid taxes and insurance premiums.

The amount of closing costs may come as a shock to inexperienced borrowers, and many times may total between 2-5 percent of the purchase price.

Down Payment

The down payment for a home is applied directly toward lowering your total loan amount and is not to be confused with settlement or closing costs. Normally based on a percentage of the total sales price, the amount is typically established early in the loan application process with your lender and will determine the amount of money you are actually borrowing from, and therefore owe, the bank. While down payment amounts can vary from 0 percent for a VA or USDA loan to upward of 20 percent or more for certain conventional loans, normally the source of the money must be verified and approved by the lender.

Final Amount Owed

Both the down payment amount and closing costs are required at the same time, at the closing table and lumped together into one large payment. The settlement sheet, after any credits such as the earnest money deposit or seller contributions are tallied, has a final amount owed by you, the buyer. This amount also includes all settlement charges, the required down payment and any miscellaneous and prorated fees.

Still have questions about how this process will work for you? Call me and let’s talk about it!