When Do You Pay Closing Costs and Down Payment?

Buying a home involves financial commitments beyond the purchase price. These milestones, including the down payment and various closing costs, are disbursed at different stages of the homebuying journey. Understanding the timing for each payment is important for managing expectations and ensuring a smooth transaction. Careful planning and coordination are needed to avoid delays or unexpected financial burdens.

Payments Before Closing Day

Before the official closing day, a homebuyer encounters several upfront financial obligations. One initial payment is the earnest money deposit. This sum, which commonly ranges from 1% to 2% of the home’s sale price, is paid once the offer is accepted and the purchase agreement is signed. It is held in an escrow account by a neutral third party, demonstrating the buyer’s serious intent to purchase.

As the homebuying process progresses, other fees become due. An appraisal fee is paid by the buyer to a professional appraiser who assesses the home’s value to ensure it supports the loan amount. This fee is required upfront or around the time the loan rate is locked, well before closing day. Similarly, a home inspection fee is paid directly to the inspector at the time of the inspection, not at closing. Home inspection costs range from $250 to $400.

The Down Payment at Closing

The down payment, a significant portion of the home’s purchase price, is due on the closing day. While the percentage for the down payment is determined early in the mortgage application process, the actual transfer of these funds occurs as part of the final transaction. The amount required is the total down payment percentage minus any earnest money deposit already paid, as the earnest money is credited towards the down payment at closing.

For instance, if a buyer puts down 10% on a $300,000 home and has already paid a $5,000 earnest money deposit, the remaining $25,000 of the down payment is due at closing. These funds, along with other closing costs, are combined into a single “cash to close” amount. The transfer of the down payment on closing day is conducted via a wire transfer or certified/cashier’s check to the title or escrow company.

Remaining Closing Costs on Closing Day

Beyond the down payment, additional fees and prepaid expenses, collectively known as closing costs, are settled on the closing day. These costs, which range from 2% to 5% of the loan amount or home’s purchase price, cover various services and taxes associated with the transaction. Examples of these costs include lender fees, title insurance premiums, recording fees for the deed and mortgage, and attorney fees.

Additionally, some prepaid expenses like initial homeowners insurance premiums and prorated property taxes are collected at closing. All these charges are itemized on the Closing Disclosure document, which lenders are legally required to provide at least three business days before the scheduled closing date. This allows the buyer to review all final terms and costs before the funds are disbursed by the title or escrow company.

Preparing for Payment Logistics

To ensure a smooth closing, understanding accepted payment methods and logistical requirements for large sums is important. For substantial amounts due at closing, personal checks are not accepted. Instead, funds must be “certified,” meaning they are guaranteed by the bank. The most common methods for transferring these funds are wire transfers or cashier’s checks.

Wire transfers are preferred for their speed and security, as funds move directly from one bank account to another. However, they are irreversible once initiated, making verification of instructions important. Cashier’s checks, issued by a bank, also represent guaranteed funds but may require more lead time to obtain and can involve a physical delivery. To prevent wire fraud, independently verify all wire instructions directly with the title company or closing agent via a phone number obtained from a trusted source, not from an email. Coordinating with the lender and title company in advance ensures that funds are accessible and transferred by the necessary deadlines.