Closing Costs vs Down Payment

When you’re purchasing a home, you’ll want to familiarize yourself with the terms closing costs and down payment as those terms are sometimes confused and misused. Understanding the difference between the two and how they vary between VA, FHA, and conventional loans can help you figure out how much money you need to save for your purchase. For now, let’s look at the definition of closing costs AND down payment.

Down Payment
A down payment is a percentage of the total purchase price paid at closing when purchasing a home. Most lenders require a minimum of 3% to 5% of the home’s value depending on the type of loan product you are using and your status as a first-time homebuyer. This is not paid upfront. It is paid at closing.

Closing Costs
Closing costs are the fees associated with the mortgage closing process. They include expenses such as appraisal fees, title insurance, attorney fees, and mortgage origination fees. These costs typically range from 2% to 5% of the home’s purchase price. This is not paid upfront. It is paid at closing.

So, to recap:
1) A down payment is the initial payment made by the borrower when purchasing a home calculated as a percentage of the total purchase price.
2) Closing costs are the fees associated with the mortgage closing process.