Closing Costs, Down Payments, Earnest Deposits… Oh My!
Have you been thinking about buying a home and getting started with the process and you keep hearing about closing costs, earnest deposits, and down payments and you’re wondering “what’s the difference between each of these”? In this video I’ll explain the difference between these terms and when they come up in a real estate transaction so you know what to expect.
If you are getting a loan or a mortgage to buy your home, then you will likely be required to put a down payment towards the loan. This is an amount of the purchase price that you are paying towards the loan, typically a percentage of the purchase price. With certain loans like VA or RD there may be the option for a 0% down payment, but typically the down payment ranges from 3% - 20%. Just a tip, 20% down is not a requirement to get a mortgage!
When it’s time to close your loan on the property you’re buying, you will have closing costs associated with that loan. Closing costs include items like loan origination fees, state transfer tax, appraisal fees, and setting up your escrow account for your loan. This will include items like home insurance and collecting several months of property taxes so the bank can pay those on your behalf. You will also pay prepaid interest on your loan.
Your cash to close will be the total of your down payment and your closing costs. This is the total amount of money that you are required to bring to the closing in order to buy the property.
When you initially make an offer on the property you will include an earnest deposit with your offer. This earnest deposit amount varies depending on your offer strategy. This deposit is held in a trust account at an agency until the closing and this amount is then deducted from the buyer's total cash to close.
If you are curious to learn more about other terms used in a real estate transaction and better understand their meanings, then be sure to check out my next video where I discuss home inspections, if they’re required, and what happens if you choose not to get one. If you have more questions about real estate or the Portland market overall, please feel free to reach out.