Chris  Schmidt
Chris Schmidt

What are Down Payment and Closing Costs?

When purchasing a home, it’s essential to understand the upfront costs involved, including the down payment and closing costs. These expenses can significantly impact your overall financial plan, so being well-informed is key to a smooth and successful home-buying experience. In this article, Chris Schmidt and the real estate experts at Your Home Sold Guaranteed Realty - Chris Schmidt Team give insight into what the down payment and closing costs are.

Key Takeaways:

  • A 20% down payment is ideal to avoid private mortgage insurance, but lower down payments (3-10%) are possible with PMI.
  • Closing costs typically range from 2% to 5% of the home’s purchase price and cover various fees and expenses.
  • Down payment assistance programs are available in Houston for eligible homebuyers, offering grants, loans, or tax credits to help with upfront costs.
  • Proper planning and budgeting for the down payment and closing costs are crucial for a successful home purchase.

Down payment and closing costs are two separate expenses involved in buying a house.

Down Payment

A down payment is the upfront cash payment made towards the purchase price of the home. It is typically expressed as a percentage of the home’s value, such as 20%, 10%, or as low as 3.5% for certain loan types like FHA loans. The down payment reduces the amount needed for a mortgage loan and shows the lender the buyer’s commitment to the purchase.

Closing Costs

Closing costs are the fees and expenses paid at the closing of the real estate transaction, separate from the down payment. These costs typically range from 2% to 5% of the home’s purchase price and include:

  • Lender fees (origination, underwriting, etc.)
  • Third-party fees (appraisal, title search, title insurance, etc.)
  • Prepaid costs (property taxes, homeowners insurance, etc.)
  • Other fees (recording fees, transfer taxes, etc.)

Closing costs cover the administrative and legal expenses involved in transferring ownership of the property.

The down payment is a portion of the home’s purchase price paid upfront by the buyer, while closing costs are additional fees paid at closing to facilitate the real estate transaction. Both are important expenses to budget for when purchasing a home.

How much is required for a down payment?

While a 20% down payment is ideal to avoid PMI and get better interest rates, the average down payment for first-time homebuyers in 2023 was just 6%, and 17% for repeat buyers.  The right down payment amount depends on your financial situation, the home price, and what you can reasonably afford while having some savings left over for closing costs and reserves.

  • A down payment of at least 20% of the home’s purchase price is typically recommended to avoid paying private mortgage insurance (PMI). PMI is an additional monthly fee that protects the lender if you default on your loan.
  • However, many homebuyers opt for lower down payments, such as 10%, 5%, or even 3.5% for FHA loans, which require PMI until you reach 20% equity in the home.
  • With a conventional loan and excellent credit, you may be able to secure a down payment as low as 3%, but PMI will be required until you reach 20% equity.

What are the estimated closing costs for a Houston homebuyer, and what do they cover?

For a Houston homebuyer, typical closing costs can range from 2% to 5% of the home’s purchase price. These costs cover various fees and expenses associated with finalizing the real estate transaction.

The main closing costs for Houston homebuyers include:

Lender Fees

  • Loan origination fee (typically 0.5%-1% of the loan amount)[1][4]
  • Discount points (prepaid interest to lower the mortgage rate)
  • Underwriting fee
  • Appraisal fee ($300-$500)

Title and Insurance

  • Title search and insurance policy (to ensure clear property ownership)
  • Homeowner’s insurance premium (often paid upfront for the first year)

Prepaid Costs

  • Property taxes (prorated for the remaining period after purchase)
  • Mortgage interest (paid from closing date to first payment)

Other Fees

  • Recording fees to make the sale/purchase public record
  • Survey fee (if a new survey is required)
  • Escrow/attorney fees

For example, on a $300,000 home purchase in Houston, if the closing costs are 3%, the buyer would pay around $9,000 at closing to cover the above fees and expenses.

It’s important for Houston homebuyers to review the Loan Estimate from their lender, which provides an estimate of all closing costs, and to discuss ways to potentially reduce some of these fees through negotiations with the seller or lender.

Are there any down payment assistance programs available?

Several down payment assistance programs are available in Houston and surrounding areas for eligible homebuyers.  These programs can provide financial assistance in the form of grants, low-interest loans, or tax credits to help cover the down payment and closing costs.  Eligibility criteria may include income limits, first-time homebuyer status, or specific geographic areas.  

Some popular programs in the Houston area include the Houston Homebuyer Assistance Program, the Texas Mortgage Credit Certificate Program, and the Texas Statewide Homebuyer Education Program and Your Home Loan Boost DPA.

Your Home Loan Boost DPA

Your Home Sold Guaranteed Realty - Chris Schmidt Team. What are Down Payment and Closing Costs?

As a prospective homebuyer in the Houston area, one of the biggest hurdles you may face is coming up with the funds for a down payment and closing costs. The good news is that there’s a comprehensive solution designed specifically to help you overcome this challenge – the Your Home Loan Boost Down Payment Assistance (DPA) program.

Offered by Your Home Loan Chris Schmidt, a leading mortgage broker in the Greater Houston area, the Boost DPA program is a game-changer for eligible homebuyers. This innovative initiative provides financial assistance in the form of grants or low-interest loans, making the path to homeownership smoother and more attainable.

Key Features of the Boost DPA Program

  • Refinancing Flexibility: One of the standout features of the Boost DPA program is its refinancing flexibility. You can refinance your mortgage just six months after the initial purchase, allowing you to take advantage of improved financial conditions or lower interest rates much sooner than with many other programs.
  • Interest Rate Buydowns: The program supports interest rate buydowns, including 1/0 and 2/1 buydowns. This means you can enjoy lower initial monthly payments, making homeownership more accessible from the start.
  • Repayable and Forgivable Options: The Boost DPA program offers two distinct options for down payment assistance:
    • Repayable Option: This option provides down payment assistance that can be repaid over 15 years, offering a structured repayment plan without immediate financial burden.
    • Forgivable Option: With this option, the down payment assistance converts into a grant that does not need to be repaid if you stay in the home and continue to meet certain conditions over a specified period.
  • Seller and Builder Concessions: The program allows for seller or builder concessions, which can be used to cover closing costs or buydowns, further reducing the initial amount you need to bring to closing.
  • Wide Property Eligibility: Eligible properties under the Boost DPA program include 1-4 unit homes, condos, townhomes, and even double-wide manufactured homes, ensuring a broad range of housing options for applicants.
  • No First-Time Homebuyer Requirement: Unlike some other down payment assistance programs, the Boost DPA is available to both first-time and repeat buyers, making it an excellent option for anyone looking to purchase a home in Houston, regardless of their previous homeownership status.
  • Comprehensive Underwriting Flexibility: While adhering to FHA and USDA guidelines, the Boost DPA offers added flexibility in underwriting, making it easier for borrowers with unique financial backgrounds to qualify.
  • Low Minimum Credit Score Requirement: With a minimum credit score requirement as low as 580 for FHA loans, the Boost DPA program is accessible to a wider audience, especially those working on building their credit.
  • No Income Restrictions: There are no strict income restrictions, allowing individuals and families with varying income levels to potentially qualify for the program, provided they meet other financial criteria.
Your Home Sold Guaranteed Realty - Chris Schmidt Team. What are Down Payment and Closing Costs?
Chris Schmidt

Call or Text Chris Schmidt To Get Your Mortgage Loan Process Started

By leveraging the Boost DPA program through Your Home Loan Chris Schmidt, you can unlock the door to your dream home in the Houston area. With its flexible options, comprehensive eligibility criteria, and financial assistance, this program empowers more individuals and families to make their homeownership dreams a reality.

Don’t let the down payment and closing costs be a barrier any longer. Contact Your Home Loan Chris Schmidt today to explore the Boost DPA program and take the first step towards becoming a proud homeowner in the vibrant Houston community.

To Discuss Your Home Sale or Purchase, Call or Text Today and Start Packing!