Closing costs and down payment are two separate amounts you pay when you buy a home
Closing costs are the fees and expenses you pay to finalize the mortgage and transfer ownership. Down payment is the money you give the seller as your initial stake in the property. They are not the same thing, and lenders count them differently when you apply for a mortgage.
When a lender tells you that you need 10% down, they mean 10% of the purchase price. Closing costs sit on top of that number. If you buy a $300,000 home with 10% down, you need $30,000 for the down payment plus another $6,000 to $12,000 (or more) for closing costs. You must bring both amounts to closing day.
Some closing costs can be paid by the seller instead of you, and some can be rolled into your loan. But the down payment itself cannot be borrowed or transferred—it comes from your own money or a gift.
Key Takeaways
- Down payment and closing costs are separate; lenders require both, and the down payment percentage does not include closing costs.
- Closing costs typically run 2% to 5% of the purchase price and cover appraisals, title insurance, inspections, and lender fees.
- You can sometimes negotiate for the seller to pay part or all of your closing costs, but this is a separate negotiation from the down payment.
- Some closing costs can be rolled into your mortgage loan, but the down payment must come from your own funds or a documented gift.
- Your lender will provide a Closing Disclosure form at least three business days before closing, itemizing every cost you owe.
What closing costs actually include
Closing costs cover the work and services needed to complete the sale. They include the lender's origination fee (the cost to process your loan), the appraisal (to confirm the home's value), title insurance (to protect you if someone else claims ownership), a title search (to verify the seller owns the property), homeowners insurance, property taxes, and recording fees (paid to the county to register the deed).
You also pay for a home inspection if you ordered one, though many buyers pay this before closing. Depending on your loan type and location, you may pay for a survey, pest inspection, or HOA transfer fees. Your lender may require you to prepay property taxes and homeowners insurance for the first few months, which gets held in an escrow account.
The exact list varies by state, loan type, and lender. Your lender must send you a Closing Disclosure form at least three business days before closing day. This form itemizes every single cost, so you will know the exact total before you sign.
How much closing costs typically run
Closing costs usually fall between 2% and 5% of the purchase price. On a $300,000 home, that means $6,000 to $15,000. The exact amount depends on your location, loan type, and which services are required.
FHA loans often have higher closing costs than conventional loans because FHA requires an upfront mortgage insurance premium, which is a percentage of the loan amount. VA loans and USDA loans have their own fee structures. Your lender can give you an estimate within three business days of your application, and this estimate should be close to your final Closing Disclosure.
Some costs are fixed (like recording fees set by the county), while others are negotiable (like the lender's origination fee). Shopping around with multiple lenders can save you hundreds or thousands on these fees.
When the seller pays closing costs instead of you
In a competitive market, buyers often ask the seller to cover some or all closing costs as part of the purchase negotiation. This is called a seller concession. If the seller agrees, they pay the costs directly to the title company or lender at closing, and you do not pay them out of pocket.
However, there are limits. Conventional loans allow seller concessions up to 3% of the purchase price. FHA loans allow up to 6%. VA loans allow up to 4%. If the seller pays more than the limit, the lender will reduce your loan amount or require you to lower your offer price.
Asking for seller concessions does not change your down payment requirement. You still need to bring your down payment from your own funds or a gift. The concession only covers closing costs.
Rolling closing costs into your mortgage
Some lenders allow you to roll closing costs into your loan amount instead of paying them upfront. This means you borrow the money for closing costs and pay it back over the life of the mortgage with interest.
This option lets you close with less cash on hand, but it costs more in the long run. If you roll $10,000 in closing costs into a 30-year mortgage at 7%, you will pay roughly $23,500 by the time the loan is paid off. You also cannot roll your down payment into the loan—that money must come from your own pocket.
Not all lenders offer this option, and not all loan types allow it. Ask your lender whether you can roll costs into the loan and what the trade-offs are.
Down payment gifts and closing cost limits
If you are receiving a gift to help with your down payment, the lender will require a gift letter from the person giving you the money. The letter must state that the money is a gift, not a loan, and that the giver does not expect repayment.
Gifts can cover your down payment, but they cannot cover closing costs in most cases. Lenders require that you pay closing costs from your own funds, savings, or by negotiating with the seller. Some loan programs make exceptions, but this is rare and depends on the lender and loan type.
If you are short on cash, your best options are asking the seller to cover closing costs, rolling costs into the loan, or delaying the purchase until you have saved more.
What happens at closing day
On closing day, you will sign the final paperwork and transfer the money. The title company or attorney will have already prepared a Closing Disclosure showing every cost. You will bring a cashier's check or arrange a wire transfer for your down payment plus your portion of closing costs (if you are not having the seller pay them or rolling them into the loan).
The title company collects all payments—yours, the seller's, and the lender's—and distributes them to the appropriate parties. The lender funds your mortgage, the seller receives the sale proceeds, and you receive the deed to the property. The entire process usually takes two to three hours.
If you spot an error on the Closing Disclosure, you have the right to ask for a correction before you sign. Do not sign if the numbers do not match what you were promised.
Frequently Asked Questions
Can I use a gift to pay closing costs?
Most lenders require you to pay closing costs from your own funds or by negotiating with the seller. Gifts are typically restricted to down payment only. Some loan programs make exceptions, but you must ask your lender before assuming a gift can cover closing costs.
What if I do not have enough money for both down payment and closing costs?
You have three main options: ask the seller to cover closing costs, roll closing costs into your mortgage loan, or delay the purchase until you have saved more. Some lenders also offer down payment assistance programs that may help with both, though these vary by location and loan type.
Do closing costs change if I put down more than 20%?
Closing costs are based on the purchase price and loan amount, not the down payment percentage. A larger down payment means a smaller loan, which may lower some lender fees, but most closing costs (title insurance, appraisal, recording fees) remain roughly the same.
Can I negotiate closing costs with my lender?
Yes. The lender's origination fee and some other charges are negotiable. Shopping around with multiple lenders often reveals significant differences in closing costs. However, some costs like appraisals and title insurance are set by third parties, not the lender.
Will my closing costs be the same as my estimate?
Your final Closing Disclosure may differ slightly from your initial estimate, but lenders are required to keep changes small. If your final costs are significantly higher, you have the right to ask for an explanation and to request corrections before you sign.