Down Payments & Closing Costs

When you buy a Home, there are several up-front costs you should be aware of, particularly down payments and Closing Costs.

Down Payments

A Down Payment is usually between 3% and 20% of the total cost of the Home. The amount of the Down Payment depends on your Credit History, Income, the cost of the Home, and the type of Real Estate financing you choose. Some lenders also have loan options that allow for No Down Payment at all.

If your Down Payment is less than 20%, you will need Private Mortgage Insurance (PMI). This is insurance you pay to protect the Bank (not you) if you don't repay your loan in full. PMI is added to your Closing and monthly Real Estate costs. When you apply for a Home loan, many loans require you to also have at least two month's worth of Home loan payments saved, called Reserves. However, there are loans that do not require reserves.

Most lenders want to know the source of your Down Payment and have restrictions about how much can come from gifts from your relatives. In most cases, these gifts will need to be documented. Ask your lender for more information.

Closing Costs

Closing, or settlement, costs are fees you pay when you actually get your loan from your financial institution. These include Points, Taxes, Title Insurance, Financing Costs, items that must be prepaid or escrowed, and other Settlement Costs.

Closing Costs generally range between 2-7% of the loan value. You'll receive an estimate from your lender after you apply for your financing. You must pay these costs at the time you close on your loan.

Frequently Asked Questions

What Closing Costs might a Buyer pay?

Closing costs are various charges paid to different entities associated with facilitating real estate transactions. Some of the closing costs a buyer might encounter include: application fee, appraisal fee, credit report, transfer tax, discount points, notary fee, documentation fee, title and escrow fees, loan fees, mortgage insurance, origination fee, title insurance premium and others. Closing costs are negotiable between the parties.

 What is a Point?

One point is equal to 1 percent of the loan amount. Depending on the context, it can have different interpretations. A discount point provides the borrower with a reduced, "discounted" note rate. An origination point is a fee for services rendered in connection for originating the loan. An FHA or VA offer may ask the seller to pay points.

What is Earnest Money?

When a buyer makes an offer to purchase your property, they will need to provide an earnest money deposit as a sign of good faith. The earnest money deposit becomes a part of the purchase price and is held, or deposited into a trust or escrow account until there is full acceptance of the offer and the transaction closes. Typically, the earnest money deposit is 3 to 5 percent of the offer amount. In a FSBO transaction, the buyer should make their earnest money check payable to the escrow company.

What is Title Insurance?

Title insurance protects the buyer and seller. It is and insurance policy issued by a title insurance company and specifies, among other things, what liens are recorded against the subject property. Public records can be incomplete and contain errors regarding the history of ownership of a property (chain of title). It's critical that an owner receive undisputed, marketable title to the property. Title insurance was developed to attest to the reliability of the chain of title, and compensate people in the event problems arise and someone contests the sale transaction. There are different levels of protection offered by different types of title insurance.