If you’re in the escrow period, this blog is for you. In this article, I’ll talk briefly about two most important terms commonly used during the escrow period – closing cost and down payment.
Know Your Escrow Terminology: Closing Costs and Down Payment
What is a Down Payment?
It’s the amount of equity buyers will have to bring to the table before purchasing the real estate. Usually, this down payment rate is between 3.5 to 20 percent. However, this rate can vary from lender to lender and the program they are using.
By making a down payment, as a buyer, you’ll be able to create instant equity in your real estate. Apart from this, when you pay down payments, you’ll have the chance to receive better mortgage terms and interest rates.
Home Loan Types for Down Payment
FHA loans have been available since the great depression and, till now, a great option for people with little money for a down payment. If you have a good credit score, 580+, you’ll have to pay a down payment of 3.5 percent. However, with a bad credit score, this down payment can go up to 10%.
This type of loan isn’t for everyone unless you’re a military veteran. The US government started this project to give veterans a better life after retirement. Besides, the government guarantees to pay the mortgage loan if a veteran fails to do so. With this type of loan, veterans won’t have to put up any down payment when purchasing the property.
What are Closing Costs?
It’s the amount of money you’ll have to pay while closing your house deal. This closing cost includes the costs of an attorney, taxes, title insurance, appraisals, and so on.
To estimate your closing costs, you’ll have to start with your lender. After applying for the mortgage loan, your lender will have to give you the Loan Estimate. If you think that there are some costs missing in the loan estimate, you should inform the attorney or your lender.
Before closing your home loan, you’ll receive the final closing disclosure documents. Now, you’ll have to compare these documents with your initial loan estimate or LE. Once you’re done calculating the closing costs, ask your real estate closing agent about the payment method. In most cases, you’ll have to pay the closing costs with a cashier’s check.
Are Closing Costs and Down Payment Same?
Most new property buyers confuse these two and fail to understand their meaning. In reality, down payment and closing costs are entirely different terms. In summary, down payment is the money you’ll have to pay in the beginning and at the closing table while closing costs are paid right before finalizing the home deal.0