Down Payment vs Earnest Money vs Closing Costs

Real Estate Agent with Keller Williams Realty - Washington Township 0896498

All the saving and self discipline is finally about to pay off, because you are ready to buy your first home. 

All of your research told you that you would need 5-10% of the home price to put down on the property. It took a lot of time, you are sure that you’ve saved enough money, but is it really enough? Everyone talks about the down payment, but there’s more to it than that. You will also need to consider the amount of money you will need for closing costs. 

Before you get discouraged, let’s dig a little deeper. 

So what is the down payment?

The down payment is the cash you pay upfront to make a large purchase and is expressed as a percentage of the price (5-20% of purchase price), and it consists of two parts : The Earnest Money Deposit and the remainder of the down payment, which you give the lender when you make the purchase at closing. 

The Earnest Money Deposit (EMD or Good Faith Deposit) is made to prove the buyer’s offer to purchase the property is made in good faith. This money is placed in a trust or an escrow account until the contract closes. This EMD is then applied to the buyer’s closing costs, transaction fees or down payment. 

Next, we have the closing costs. Now, these closing costs can range between about 2-5 percent of the purchase price of their home and they cover fees, taxes and administrative expenses. The kinds of fees can vary depending on the type of transaction and your state. 

Here’s an example of some of the fees you can expect to pay at closing:  

  • Application fee
  • Appraisal
  • Attorney fee (where applicable)
  • Closing fee or Escrow fee
  • Courier fee
  • Credit Report
  • Escrow Deposit for Property Taxes and Mortgage Insurance
  • FHA Up-Front Mortgage Insurance Premium
  • Flood Determination or Life of Loan Coverage
  • Home Inspection 
  • HomeOwners Association Transfer fees (when applicable)
  • Homeowner’s Insurance
  • Lender’s Policy Title Insurance
  • Lead-Based Paint Inspection
  • Loan Discount Points
  • Owner’s Policy Title insurance
  • Origination Fee
  • Pest Inspection 
  • Prepaid Interest
  • Private Mortgage Insurance (PMI)
  • Property Tax
  • Recording Fees
  • Survey Fee
  • Title Company Title Search
  • Transfer Taxes
  • Underwriting Fee
  • VA Funding Fee (when applicable)

I know this may catch you off guard, but before you get discouraged, know that there are options to assist with these costs. Some people find that they can qualify for programs that may be offered by their state, such as First Time Homebuyer, to receive assistance and lower their out of pocket costs. There are also programs for Veterans, Teachers and more. 


Melissa Steele

Real Estate Agent

Keller Williams - Washington Township

381 Egg Harbor Road, Suite 2

Sewell, NJ 08080

Office: 856-582-1200

Cell: 856-203-2970

Comments (1)

John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Hello Melissa Steele very good report about down payment vs earnest money vs closing cost.

Oct 14, 2021 02:48 PM
Melissa Steele

Thank you

Oct 15, 2021 08:11 AM