Casa Academy

Reviewed by Casa Academy and updated July 29, 2026 using the current DBPR checklist and Pearson VUE scheduling guidance.

Closing Costs vs Down Payment

A down payment is the portion of the purchase price the buyer pays upfront toward equity, usually expressed as a percentage of the sale price. Closing costs are separate settlement charges for services, taxes, insurance, and loan fees due at closing, typically stated as a dollar amount or percentage of the loan.

Exam context

Do not subtract closing costs from the down payment in math questions. Total cash needed at closing equals down payment plus buyer closing costs minus any seller credits, subject to lender limits on concessions.

Down payment builds equity

On a $400,000 home with a 10% down payment, the buyer brings $40,000 toward the purchase price before financing the remainder. Conventional loans often require 3% to 20% down depending on program and occupancy. The down payment reduces the loan amount and may affect private mortgage insurance requirements.

Closing costs pay for the transaction

Closing costs cover appraisal, title insurance, recording fees, lender origination, prepaid property taxes, and homeowner insurance reserves. Buyers and sellers negotiate who pays which items per contract custom and local practice. A buyer might bring 3% of the loan amount in closing costs in addition to the down payment.

Examples

  • First-time buyer budget

    A buyer saves $25,000 for a 5% down payment on a $500,000 condo and must also budget $12,000 for lender and title charges at settlement.

  • Seller credit

    A contract gives the buyer a $8,000 seller credit toward closing costs. That credit reduces cash due at closing but does not replace the contractual down payment percentage.

Keep studying

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Related terms

  • BuydownUpfront funds used to lower initial loan payments.
  • Conventional loanNon-government mortgage with typical down payment ranges.

Related resources

Sources