Is Down Payment Included in Closing Costs?

A lot of people will ask “Is down payment included in closing costs?” when they’re buying a home. And the simple answer is no, they’re not the same. It’s easy to get them confused because they’re both big upfront costs you pay when you’re in the homebuying process.

Think of it this way:

• Your down payment is the initial chunk of money you put toward the purchase price of the house. It’s your personal investment in the property.
• Closing costs are all the fees for the services needed to finalize the home sale. This includes things like appraisal fees, title insurance, and lender fees.

So while they’re both due at the same time, they’re two distinct things. Whether you’re buying your first home in Washington state or Washington, D.C., understanding the difference is key.

Closing costs vs. down payment

So what is the difference between closing costs and a down payment? We’ll walk through the distinctions here. 

Down payment

• What it is: The down payment is the initial part of the home’s purchase price that you pay yourself. It’s your direct investment in the property and a percentage of the total price.
• Purpose: It reduces the amount of money you need to borrow from a lender (your mortgage). A larger down payment can lead to a smaller loan, potentially lower interest rates, and can help you avoid private mortgage insurance (PMI) if you put down at least 20%.
• Where it goes: The money goes directly toward the price of the home, building your equity from day one.

Closing costs

• What they are: Closing costs are all the various fees and expenses associated with finalizing the home sale. Think of it as the cost of doing business.
• Purpose: These fees cover the services and administrative work needed to process your loan and legally transfer ownership of the property.
• What’s included: The list can be long, but common closing costs include:
  • Lender fees (for processing the loan)
  • Appraisal fees
  • Title insurance and title search fees
  • Attorney fees
  • Recording fees and taxes
  • Initial escrow payments for property taxes and homeowners’ insurance
• Where it goes: The money is distributed to all the different parties involved in the transaction, like the lender, title company, and local government.

While both are paid around the same time at the closing table, it’s crucial to budget for them separately. Your lender will provide you with a “Closing Disclosure” at least three days before your closing date, which gives you a detailed breakdown of all these costs.

Understanding the closing process

Let’s walk through all the steps of the closing process and what to expect during each one. 

What happens before closing day?

First, you and the seller will agree on a specific day to close. Your lender will give you a document called a closing disclosure. This is a super important paper because it lays out all the final details of your mortgage, including your loan terms and all the fees and costs you’ll be paying. Make sure you read it carefully and ask questions if anything looks confusing.

What happens on closing day?

Everyone: You, the seller, and your real estate agents traditionally meet up at a title company or an attorney’s office. However, sometimes meeting in person isn’t an option. In those cases, you can often sign the papers with a mobile notary who will come to you. 

Just ask your agent if this is an option, and they’ll make sure you have time to review everything before you sign. Once all the paperwork is signed and the money has been sent, you’ll finally get the keys. Congratulations, you’re a homeowner.

Bottom line about down payments and closing costs

To wrap it all up, remember that your down payment and closing costs are two distinct things, even though you pay them at the same time. The down payment is your personal investment in the house, while closing costs are the fees to make the transaction official.

Now that you know the difference, don’t let it stop you from finding your dream home. If you’re ready to get started, you can find an Redfin agent to help you navigate the process and find the right property for you.

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