Down payment and fees are the difference between the property sales price and the amount of the mortgage against it, plus closing costs required to complete the transaction.
This is the total a home buyer must come up with before the mortgage lender funds the home loan and the property purchase can close.
Closing costs typically run from two to five percent of the home price and can include charges for:
- Credit report
- A loan origination
- Attorney services
- Home inspection
- Discount points
- Title insurance – lender’s policy and owner’s policy
- Title search
- Escrow services
- Pest inspection
- Recording fee to the county
Other costs are not mortgage fees or lender charges but are costs of home ownership and must often be prepaid:
- Property taxes
- Homeowners insurance
- HOA dues
- Flood Insurance
Home buyers can minimize closing costs by asking the seller to cover them, by choosing a “no-cost” mortgage (this does involve accepting a higher interest rate) and by shopping for home loans with more favorable terms.
For most people, buying a home is impossible without a mortgage. Many people make a down payment and then repay a mortgage with monthly payments that also include interest. A down payment can lower your monthly mortgage payments, as well as help you avoid private mortgage insurance, or PMI.
Aside from a down payment and monthly payments on a mortgage, you will also probably be expected to pay some fees when you close on the loan. For that reason, it is a good idea to have between 3 and 5 percent of the loan amount to cover these costs. Closing costs can include a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement.
Different lenders require different figures for down payments and fees, so it is important that you know what you have and what is expected of you. There are no and low down payment options, but remember that the more you have for a down payment, the lower your monthly payment will be. Also keep in mind that having 20 percent for a down payment can help you avoid PMI. It can be helpful to negotiate closing costs with the seller of the home you are purchasing and your lender. By being an informed consumer, you could end up having some fees waived by your lender or covered by the seller. Read the fine print and know what costs are required so you can save money.