Home Buyer
CHICO · PARADISE · OROVILLE · BUTTE COUNTY
Down Payments, Closing Costs, and Prepaids
Understand savings, down payment sources, seller credits, deposits, and the cash needed to buy a home.
Your Down Payment Is Only Part of the Cash Needed
| Cost | What it means |
|---|---|
| Down payment | The portion of the purchase price paid without the first mortgage. |
| Closing costs | Loan and transaction charges, such as lender, title, escrow, and recording fees. |
| Prepaids and escrow deposits | Items such as prepaid interest, insurance premiums, and initial tax or insurance account funding. |
| Other savings | Budget for inspections, moving, repairs, and a cushion after closing. A lender may also require reserves. |
How Does the Earnest Money Deposit Fit In?
The deposit is generally credited toward your purchase at closing. Its deadline and the circumstances in which it can be refunded depend on your contract; review those terms before making an offer.
If a family member is providing eligible gift funds or you’re using down payment assistance, you may be able to receive some or all of the earnest money you paid back at closing, once the required down payment, closing costs, and prepaids are covered. This depends on the loan and assistance program rules, any required contribution from your own funds, and documentation of your deposit. We can help you and escrow confirm whether a refund is allowed and calculate the amount. Ask for an estimate of cash to close that accounts for your deposit and any permitted credits so it isn’t counted twice.
Questions About Your Purchase
What Are Closing Costs and Prepaids?
Closing costs are the charges associated with getting your mortgage and completing the purchase. They can include lender fees, appraisal, title insurance, escrow services, and recording fees.
Prepaids and initial escrow deposits cover items such as homeowners insurance, interest from closing until the end of the month, and funds set aside for future property tax and insurance bills. These are different from fees for arranging the loan, but they still affect the cash needed at closing.
Closing costs and prepaids may be paid by the seller through a negotiated seller credit, subject to your loan program’s limits and eligible costs. This must be agreed to as part of the purchase terms. We can help you review both categories alongside your down payment so you have a clearer picture of the total.
How Much Savings Do I Need?
Your down payment is often the largest part, but you also need a plan for closing costs and prepaids. Seller credits, lender credits, or eligible assistance may cover some or all of those costs, subject to program limits. On a purchase, they generally can’t simply be added to your first mortgage. Lender credits may involve a higher interest rate.
You may also need funds for inspections and an appraisal before closing. Allow room for moving, initial repairs, and savings afterward; some loans require reserves. We can help you estimate what you’ll need based on your loan options and any available credits or assistance.
Where Can My Down Payment Come From?
Your down payment can come from several sources, depending on the loan program:
- Your savings: funds in checking or savings accounts. You may also be able to withdraw from a retirement account or borrow against an eligible plan, such as a 401(k), if the plan allows it. Review any taxes, penalties, repayment terms, and impact on your retirement savings before deciding.
- A family gift: eligible gift funds from a family member, with documentation confirming that repayment is not expected.
- Down payment assistance: an eligible program may help cover your down payment and sometimes closing costs, subject to its requirements.
- Your employer: some employers offer home buyer assistance through a grant or loan. Ask whether this benefit is available and review the terms.
The seller cannot pay your required down payment. Seller credits may help with eligible closing costs and prepaids, but those are separate from the down payment. We can help you compare these options and confirm what documentation your loan program requires.
What Is a Down Payment?
Your down payment is the portion of the purchase price covered without your first mortgage. It can come from eligible savings, family gifts, or assistance. It is separate from closing costs and prepaids.
What Is an Earnest Money Deposit, and How Does It Fit In?
It is money deposited after an accepted offer to show your commitment to the purchase. It generally counts toward the money needed at closing. Its deadline and refund rights depend on your contract.
If a family member provides eligible gift funds or you use down payment assistance, some or all of the earnest money you paid may be returned at closing once required costs are covered. Your lender and escrow must confirm that the refund meets loan and assistance program rules, required borrower contributions, and documentation requirements.
What Does Cash to Close Mean?
Cash to close is the remaining money you need to complete the purchase. It accounts for your down payment, closing costs, prepaids, and other adjustments, minus your deposit and applicable credits. Your deposit should not be counted twice.
What Are Seller Credits, and What Can They Pay For?
Seller credits are contributions the seller agrees to make toward eligible closing costs and prepaids. They can reduce the cash you need at closing, but cannot cover your required down payment. Limits depend on your loan program and transaction.
Can Down Payment Assistance Cover Closing Costs?
Yes, it’s possible. Some programs can help with eligible closing costs as well as the down payment. Availability, eligibility, and repayment terms vary, and assistance may not cover every expense. Jay and Alex can help compare these options, including the cash needed at closing and the overall cost of the mortgage.