What is a down payment?
A down payment is a payment made in cash at the onset of the purchase of an expensive good or service. It represents a percentage of the purchase price and is not refundable if the deal fell through because of the purchaser.
That said, a down payment is not the whole amount that will need to be settled with your title company at the time of your closing. In fact, you may elect to pay closing costs too.
Down payment vs. closing costs
It’s no secret that there are many hands in the pot when it comes to real estate transactions. At the time of closing, all of these hands want to get paid for the services they provided throughout the home buying process.
Sometimes you can have your closing costs wrapped into your loan—known as “cash due at closing.” Other times you can negotiate with the seller to pay some or all of the costs for you. But more often than not, closing costs are going to fall on your plate. It is worth noting that the seller and buyer will each have their own closing costs to be paid as well.
What is included in closing costs?
You don’t want to show up on the day of your closing without knowing all the costs you are responsible for. Fortunately, lenders are required to give you a closing disclosure document at least three days before your scheduled closing.
Making sense of closing disclosures
The closing disclosure is a breakdown of every cost included in your home purchase. Some fees will be going to the county in which the home is located or to the closing attorney (or title company) that is preparing the transaction. The disclosure will also show any services the lender required you to get, such as an appraisal or termite inspection.
You want to go through these disclosures thoroughly and ensure that the lender has not made any mistakes. This is your best chance to get any necessary changes made before the closing date.
You should verify that all personal information is correct and that any arrangements made between you and the seller—or between you and the financial institution doing the lending—are shown on this report. For example, if the seller said they would credit you $1,500 for repairs that need to be made, that should be shown on the third page of the report as a closing cost to the seller.
Keeping records throughout the home buying process
It is highly recommended that you keep track of any expenses you incur during the home buying process. Keeping records makes it easier to verify that all charges incurred on your closing disclosures are accurate.
You also want to make sure that you aren’t getting charged for something you have already paid for.
Estimating closing costs
Most lenders can estimate closing costs for a home, given its price and location. But you can always refer to a closing costs calculator if you want.
Specific costs that go into closing can include origination fees for the loan, application fees, underwriting fees, appraisal and inspection fees, property taxes, and insurance.