Closing Costs & Downpayments

When you buy a home, there are several up-front costs you should be aware of, particularly down payments and closing costs.

Down Payments

A down payment is usually between 3% and 20% of the total cost of the home. The amount of the down payment depends on your credit history, income, the cost of the home, and the type of mortgage you choose. Some lenders also have loan options that allow for no down payment at all.

If your down payment is less than 20%, you will need private mortgage insurance (PMI). This is insurance you pay to protect the bank if you don't repay your loan in full. PMI is added to your closing and monthly mortgage costs. When you apply for a home loan, many mortgages require you to also have at least two month's worth of mortgage payments saved, called reserves. However, there are mortgages that do not require reserves.

Most lenders want to know the source of your down payment and have restrictions about how much can come from gifts from your relatives. In most cases, these gifts will need to be documented. Ask your lender for more information.

Closing Costs

Closing costs, or settlement, costs are fees you pay when you actually get your loan from your financial institution. These include points, taxes, title insurance, financing costs, items that must be prepaid or escrowed, and other settlement costs.

Closing costs generally range between 2-7% of the loan value. You'll receive an estimate from your lender after you apply for a mortgage. You must pay these costs at the time you close on your loan.

Who Pays for What?

Sellers Can Generally Expect to Pay For:

• Real estate commission
• Document preparation fee
• Documentary Transfer Tax ($1.10 per $1,000 of sale price)
• City transfer/conveyance tax (according to contract)
• Payoff of all loans in seller’s name (or existing loan balance assumed by buyer)
• Interest accrued to lender being paid off. 
• Statement fees, reconveyance fees and any prepayment penalties
• Termite inspection (according to contract)
• Home Warranty (according to contract)
• Any judgments, tax liens, etc. against the seller
• Tax proration (for any taxes unpaid at time of transfer of title)
• Any unpaid Homeowner’s dues
• Recording charges to clear all documents of record against seller
• Any bonds or assessments (according to contract)
• Any and all delinquent taxes
• Notary fees
• Escrow fees
• Transaction Coordinator fees
• Title insurance premium-Owner’s Policy

Buyers Can Generally Expect to Pay For:

• Title insurance for Lender’s policy
• Document preparation fee
• Recording charges for all documents in buyer’s name
• Tax pro-ration (from date of acquisition)
• Homeowner’s transfer fee
• All new loan charges (except those required by lender for seller to pay)
• Interest on new loan from date of funding to 30 days prior to first payment date
• Assumption/Change of records fees for take-over of existing loan
• Beneficiary statement fee for assumption of existing loan
• Inspection fees (roofing, property inspection, geological, etc.)
• Home warranty (according to contract)
• City transfer or conveyance tax  (according to contract)
• Fire insurance premium-first year
• Notary fees
• Escrow fees
• Transaction Coordinator fees