Home Buyer FAQ: What is the Difference Between Closing Costs and the Required Down Payment?
Home Buyer FAQ: What is the Difference Between Closing Costs and the Required Down Payment?
The down payment for a home is applied directly toward lowering your total loan amount. Normally based on a percentage of the total sales price, the amount is typically established early in the loan application process with your lender. Required down payment amounts vary by loan type and can be as low as 3% for certain conventional loans or 3.5% for FHA loans.
Closing costs are fees associated with the cost of obtaining a home loan and do not lower your loan amount. 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.