What is the Difference Between Closing Costs and a Down Payment?

What is the Difference Between Closing Costs and a Down Payment?

What is the Difference Between Closing Costs and a Down Payment?What is the Difference Between Closing Costs and a Down Payment? - If you are just starting your journey in the Richmond VA real estate market, then you likely have a lot to learn. I know when I purchased my first home, I had NO CLUE what I was doing and relied heavily on the education provided by my real estate agent. And, as your Richmond VA Realtor, I want you to know there is a difference between closing costs and a down payment! Recently I was helping some new clients find their forever home. They were first time home buyers and had already been pre-qualified by their preferred mortgage lender when they came to me. As we toured we were fortunate to find a house they wanted to call HOME! It was prefect in every way: tons of square footage, newer construction, and one-level living, making it the PERFECT forever home as they won't need to worry about steps as they get older and wiser. When it was time to make the offer, I asked them again if they needed closing costs. They told me "No, we have a loan type where we don't need to put anything down." RED FLAG! It was in that moment that I realized they didn't understand there is a different between closing costs and a down payment. These are, in fact, two separate items.

What are Closing Costs?

Closing costs are the FEES paid upon closing. These fees can include the following: attorney fees, title costs, the price of a survey, application fees, appraisal cost, recording fees, and the list goes on. Closing costs will vary depending on your loan type, however buyers can expect to pay anywhere from 2% - 5% of the purchase price. Don't have closing costs? Don't fret! Many sellers are still willing to negotiate seller assisted closing costs. This basically means the seller may provide you with X amount to put towards your closing costs. Remember, not ALL sellers are willing, or able, to offer this assistance. If you don't have money for closing costs and the seller for the house of your choice will not assist, you will need to be prepared to move on to another home.

What is a down payment?

While closing costs are the FEES associated with a transaction, a down payment is the amount of money you put towards the purchase of a home. Think about it like a lay-away policy at a store. You pay a certain amount upfront and then continue to make payment until you own the item. How much of a down payment will you need to make? Again, that will depend on the type of loan you select. A VA loan may not require ANY down payment, an FHA loan requires 3.5% of the purchase price, while conventional loans can be as low as 5%, 10%, and, arguably the most popular, 20%. Speaking with a knowledgeable Richmond VA mortgage lender is best to find the program that works best for you and your financial goals.

Richmond VA Real Estate Agent

Thinking about purchasing a home but don't know where to start? Give me, your Richmond VA real estate agent at the RVA Home Team powered by eXp Realty, a call today for your free buyer's consultation! *Image courtesy of ddpavumba/http://www.freedigitalphotos.net

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