Down Payment vs. Closing Costs: What’s the Difference?

When you’re preparing to buy a home, most will only focus on the down payment—but that’s not the only part of the financial picture. Another big piece? Your closing costs.

Let’s break it down.

One of the most important distinctions you’ll need to understand is the difference between your down payment and your closing costs. These two components play very different roles in the home-buying process, and understanding both can help you plan smarter and avoid unexpected surprises or expenses at the closing table.

Your down payment is the portion of the home's purchase price that you pay upfront. Depending on the type of loan you use, it can be as low as 3% or as high as 20% or more. For example, if you're buying a $400,000 home, a 5% down payment would be $20,000. This money goes directly toward the cost of the home and helps establish your equity right from the start.

On the other hand, closing costs are a collection of fees required to finalize your mortgage. These include charges from your lender, attorney, title company, and local government. Closing costs typically range from 2% to 5% of the home’s price—so for that same $400,000 home, you might pay an additional $8,000 to $20,000. These fees cover things like your appraisal, credit report, title search, homeowners insurance, and more. It’s important to factor these into your budget early so you're not caught off guard.