Down Payment and Closing Costs

When you buy a house, you’ll face a few up-front costs. The total amount you'll need to have ready depends on several factors, including the cost of the house and the type of mortgage you get, but the following three costs are standard:

1. Earnest money. When you submit an offer to buy a house, you will be asked to pay the real estate broker earnest money. This deposit, which can vary in size, will be held by the broker until you close the deal, and it proves to the seller that you are serious about buying the house.
2. Down payment. At the closing, where you’ll sign the papers to become a homeowner, you’ll be asked to pay a down payment to the mortgage company. This is usually a percentage of the cost of the house. The more money you can put into your down payment, the lower your monthly mortgage payments will be. Some types of loans require 10 to 20 percent of the purchase price. Many first-time home buyers use Federal Housing Administration (FHA) loans, which generally require at least 3.5 percent of the sales price. If you're eligible, loans through the Department of Veteran Affairs (VA) may require no down payment. The earnest money you paid will count toward your down payment.
3. Closing costs. As part of the closing process, you'll pay the costs associated with the paperwork necessary to transfer the ownership of the house from the seller to you. Closing costs typically average 3 to 5 percent of the price of your home. When you apply for your loan, your lender should provide an estimate of the closing costs, so you won't be caught by surprise.

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