Closing costs and down payments are different money you pay at different times
No. A down payment is a percentage of the home's purchase price that you pay to the seller (or lender) to reduce the amount you borrow. A closing cost is a fee you pay to third parties—the lender, title company, appraiser, inspector—to process the loan and transfer ownership. You pay the down payment when you make an offer or at closing. You pay closing costs at closing, and they go to different people for different services.
Most buyers pay both. If you put down 20% on a $300,000 home, that is $60,000 to the seller. Closing costs on that same home typically run $5,000 to $15,000, depending on your location, loan type, and which fees the seller agrees to cover. These are separate line items on your closing disclosure, and you need cash for both.
Key Takeaways
- Down payment reduces your loan amount and goes to the seller; closing costs pay third-party service providers and are separate from the down payment.
- Down payment is usually 3% to 20% of the purchase price; closing costs typically range from 2% to 5% of the purchase price.
- You pay both at closing, but they appear on different lines of your closing disclosure and go to different recipients.
- Some closing costs can be negotiated or paid by the seller, but the down payment is always your responsibility unless you use a gift or grant.
What closing costs actually cover
Closing costs are fees charged by the people and companies involved in your loan and the sale. The lender charges an origination fee (usually 0.5% to 1% of the loan amount) to process your application and underwrite the loan. The title company charges a fee to search the property's ownership history, issue title insurance, and handle the paperwork transfer. An appraiser charges a fee to value the home. Your inspector, if you hire one, charges a separate inspection fee.
You also pay property taxes (prorated for the portion of the year you own the home), homeowners insurance (often prepaid for the first year), and possibly HOA fees or transfer taxes depending on your state and county. Some lenders charge a credit report fee, flood information fee, or underwriting fee. These are all closing costs, and they add up quickly.
The exact breakdown depends on your location and loan type. A conventional loan in California will have different closing costs than an FHA loan in Ohio. Your lender must give you a closing disclosure at least three business days before closing, and it will itemize every fee.
How down payment and closing costs differ in timing and amount
You typically make your down payment when you sign the purchase agreement or at closing, depending on the contract. The seller or lender holds it in escrow until closing. Closing costs are paid at the closing table, usually by wire transfer or cashier's check. Both happen on the same day in most cases, but they are separate transactions.
The amounts are also different. Down payment is a percentage of the purchase price: 3%, 5%, 10%, 15%, or 20% are common. On a $300,000 home, a 10% down payment is $30,000. Closing costs are typically 2% to 5% of the purchase price, so on that same home, expect $6,000 to $15,000. A buyer with a lower down payment (3% to 5%) often pays higher closing costs because the lender charges more to offset the risk.
| Expense | Typical Amount | Paid To | Timing |
|---|---|---|---|
| Down payment | 3% to 20% of purchase price | Seller (via escrow) | At signing or closing |
| Closing costs | 2% to 5% of purchase price | Lender, title company, appraiser, inspector, county | At closing |
Which closing costs you might be able to negotiate
Some closing costs are fixed—you cannot negotiate the county recording fee or the appraisal fee set by the appraiser. But others are negotiable or can be shifted to the seller. Many sellers agree to pay a portion of the buyer's closing costs as part of the purchase agreement, especially in a buyer's market. This is called a seller concession.
You can also shop around for the lender's fees, title company, and inspector. Different lenders charge different origination fees and discount points. Different title companies charge different rates. Getting quotes from at least three lenders can save you hundreds or thousands in closing costs. You cannot negotiate the down payment itself—that is your choice and your responsibility—but you can reduce the total cash you need at closing by having the seller cover some costs.
Ask your real estate agent or lender which costs are typically negotiable in your area. In some markets, sellers routinely cover 2% to 3% of closing costs. In others, it is rare. Your offer should specify who pays what.
How to calculate total cash needed at closing
Add your down payment and closing costs together to find your total cash requirement. If you are putting down 10% on a $300,000 home ($30,000) and closing costs are $9,000, you need $39,000 at closing. This does not include your earnest money deposit, which you usually make when you sign the offer—that amount is credited toward your down payment at closing, so you do not pay it twice.
Your lender will give you a loan estimate within three business days of your application. It includes an estimate of closing costs. The closing disclosure, which you receive at least three business days before closing, shows the final numbers. Compare the two to make sure nothing has changed unexpectedly. If a cost has increased significantly, ask your lender why and whether it can be adjusted.
Some buyers also budget for a home inspection, which is separate from the appraisal and is not always required by the lender. An inspection typically costs $300 to $500 and is paid directly to the inspector, not at closing. Factor that into your total cash needs if you plan to have one done.
Down payment and closing costs with low-down-payment loans
If you are putting down less than 20%, you will pay private mortgage insurance (PMI), which is an additional monthly cost, not a closing cost. But your closing costs may actually be higher with a low down payment because the lender charges more to cover the risk. An FHA loan (which allows 3.5% down) has an upfront mortgage insurance premium (UFMIP) that is rolled into your loan amount, so it does not come out of pocket at closing, but you pay it over the life of the loan.
With a low down payment, your total cash at closing is smaller, but your monthly payment is larger because you are borrowing more and paying insurance. With a higher down payment, you pay more cash upfront but less each month. Neither approach changes the fact that down payment and closing costs are separate expenses.
Frequently Asked Questions
Can I use a gift or grant to cover closing costs?
Yes, but it depends on your loan type. Conventional loans allow gifts for down payment and closing costs if the gift is from a family member and you document it in writing. FHA loans allow gifts for down payment but typically require you to pay closing costs yourself. VA loans allow gifts for down payment and closing costs. Ask your lender what documentation they need for a gift.
What if I cannot afford both the down payment and closing costs?
You can ask the seller to cover some or all of your closing costs in the purchase agreement. You can also shop for a lender with lower fees or look for down payment assistance programs in your state or county. Some employers and nonprofits offer down payment help. Your lender can tell you what programs you may be able to explore.
Do closing costs change if I refinance instead of buying?
Yes. A refinance has no down payment because you already own the home. But you still pay closing costs—lender fees, title insurance, appraisal, and recording fees. Refinance closing costs are typically lower than purchase closing costs because there is no real estate agent commission and fewer third-party fees involved.
Can I roll closing costs into my mortgage?
Some lenders allow you to roll closing costs into the loan amount, which means you do not pay them out of pocket at closing but pay them over the life of the loan with interest. This increases your monthly payment and the total amount you repay. Ask your lender whether this option is available and what the long-term cost would be.