When you are buying a home, there are a lot of different costs to consider. One of the most important is the down payment. But what is that, and how does it compare to closing costs? In this blog post, we will discuss the differences between down payments and closing costs, and help you figure out which one is best for you!
The Difference Between Down Payments and Closing Costs
Closing costs are the fees associated with buying a home. They can include things like appraisal fees, loan origination fees, title insurance, and more. Closing costs are usually paid at closing, which is when the house officially becomes yours.
Mortgages and Down Payments
A down payment is what you pay towards the purchase of your home prior to closing a home.
It is typically a percentage of the total purchase price, and it is an important part of getting a mortgage. The higher your down payment, the lower your monthly payments will be. You may also be able to get a better interest rate on your mortgage if you have a higher down payment.
How much are closing costs?
Closing costs can vary, but they are typically around two to five percent of the total purchase price of the home. So, if you’re buying a $200,000 house, your closing costs could be anywhere from $4000 to $10000.
FHA Closing Costs Guidelines
If you’re getting an FHA loan, you may be able to get help with your closing costs. FHA has a program called the “Closing Costs Assistance Program” that can help pay for some of your fees.
Closing Costs Assistance Program Options
You can only get this assistance if you’re using an FHA-approved lender, and it is only available on certain types of loans:
- VA Closing Costs – If you’re a veteran, you may be able to get help with your closing costs through the VA. The VA has a “Cash Back Grant” that can give you up to four percent of the purchase price of your home to use towards closing costs.
- USDA Closing Costs – The USDA also has a program to help with closing costs. They will give you up to three percent of the purchase price of your home to use towards fees.
- As you can see, there are a lot of options to help with your closing costs. But what if you don’t have any money for a down payment?No Money for a Down Payment?If you don’t have any money saved up for a down payment, there are still options available to you. You can look into programs
Down Payment Assistance Options
There are many different programs available that can help you with your down payment. Some of these programs are offered by the government, and others are offered by private organizations.
Government Mortgage Down Payment Assistance Programs
The government offers a few programs that can help you with your down payment.
- FHA’s “Closing Costs Assistance Program” – The FHA has a program that allows you to get a mortgage with a down payment as low as three and a half percent.
- VA’s “Cash Back Grant.” This grant can give you up to four percent of the purchase price of your home to use towards closing costs or a down payment.
- USDA “Single Family Housing Direct Home Loan”
- Private Mortgage Down Payment Assistance Programs – One example is the National Homebuyers Fund, which offers a “DreamBuilder program.” This program can give you up to five percent of the purchase price of your home to use towards a down payment or closing costs. Another example is the Neighborhood Assistance Corporation of America, which has a “Home Save Program.” This program can give you up to $15,000 for a down payment or closing costs.As you can see, there are many options available to help with your down payment or closing costs.
Can I roll closing costs into my conventional mortgage?
Yes, you can roll your closing costs into your mortgage. This is called “financing” your closing costs.
However, this will increase the amount of interest you pay over the life of the loan.
Does earnest money go towards a down payment or closing costs?
Earnest money is a deposit that you make when you make an offer on a house. It is typically around one to two percent of the purchase price.
This money goes towards your down payment, and it shows the seller that you are serious about buying the home.
Are closing costs part of the down payment?
No, closing costs are not part of the down payment.
- The down payment is the money you put towards the purchase of your home before closing.
- Closing costs are the fees associated with buying a home and are typically paid at closing.
Final Thoughts
If you choose to finance the upfront closing costs, your lender may raise your interest rate. And, this may add up to a significant monthly mortgage obligation on a 30-year loan.
If it is in a down market, you can ask the seller to pick some of your closing costs. This will not work in a strong seller’s market. This is known as a seller concession.
You can also look into some down payment buyer’s assistance programs for some financial relief.
In the end, if you pay the closing costs upfront, this will be your best long term money saving option.
