The Difference Between Your Down Payment And Your Closing Costs

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 HUD-1 Settlement Sheet, 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 the 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 and prepaid taxes and insurance premiums. The amount of closing costs may come as a shock to inexperienced borrowers, and many times may total up to 3 percent of the purchase price. The fees are significantly lower when you are paying cash for a home as there are no lender fees.

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. While down payment amounts can vary from 3.5 percent for an FHA loan to upward of 20 percent for certain conventional loans, normally the source of the money must be verified and approved by the lender.

HUD-1 Settlement Sheet

Your escrow agent will prepare what is called a HUD-1 Settlement Sheet, a required form created by the Department of Urban and Housing Development. This form lists all the debits and credits for both the buyer and seller of the real estate settlement. Your down payment and an itemized list of closing costs and related settlement charges are clearly detailed on the form so that each charge or required fee is easy to understand. Check your HUD-1 Settlement Sheet carefully to ensure its accuracy.

So now the moment of truth!

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.

As a third generation real estate agent and native of Arizona, I am passionate about helping you and your loved ones achieve your real estate goals. If you are buying or selling in Gilbert or any of the East Valley cities, trust that I will go the extra mile to ensure a smooth and successful transaction.