Give each cost its place
The down payment is one part of your purchase budget. Closing also brings loan-related charges and transaction expenses. Use the official Loan Estimate to see the categories together, then ask which amounts are quoted, estimated or still awaiting property details.
- Loan charges: Origination charges and any points associated with the loan.
- Third-party services: Items such as appraisal, title and settlement services. The Loan Estimate distinguishes services you can shop for from those you cannot.
- Other costs: Government charges, prepaid interest, insurance premiums and initial escrow deposits when applicable.
- Down payment: Your contribution toward the purchase price. It is separate from the closing-cost total.
Closing costs and cash to close differ
Cash to close combines the down payment and closing costs. Subtract deposits already paid and eligible credits, then account for other adjustments that can increase or decrease the amount due. A quoted fee total alone does not tell you how much money to bring to closing.
A hypothetical purchase example
Assume all closing costs are paid at closing. There are no financed costs or adjustments beyond the deposit and seller credit below. These invented figures are not a fee quote.
- Down payment
- $50,000
- Closing costs before the seller credit
- $8,000
- Deposit already paid toward the purchase
- Subtract $2,000
- Seller credit toward eligible closing costs
- Subtract $1,000
- Remaining cash to close in this example
- $55,000
Your actual disclosure can include additional adjustments. Review the Calculating Cash to Close section of your own Loan Estimate.
Compare points and lender credits
Discount points exchange an upfront cost for a lower interest rate. One point equals 1% of the loan amount; how much the rate changes is not fixed. A lender credit can reduce upfront costs in exchange for a higher rate. Ask what the specific credit means for your offer.
Request comparisons using the same loan amount, program, term and lock period. Review the rate, APR, payment and fees together. Consider several possible periods you might keep the loan rather than assuming you will refinance soon. A smaller closing payment may come with a larger monthly payment.
Keep prepaids and escrow in perspective
An initial escrow deposit sets aside money for future bills. Prepaid insurance and interest also affect closing cash. These amounts are different from an origination fee. They can vary with timing and property costs, so ask why they differ between estimates instead of judging lenders only by the bottom line.
Read how mortgage escrow accounts work to distinguish the opening deposit from the ongoing tax and insurance contribution.
Compare California rate options or Texas rate options for your property's state. Use the payment tools to explore the ongoing budget. Before closing, compare the Closing Disclosure with your latest Loan Estimate and ask about changes.