No. The deposit that a borrower pays does not cover their closing costs. However, both the deposit and the closing costs are due when the borrower closes on the mortgage loan.
Closing costs can range from about 2-5% of the total cost of the mortgage loan, and they can be a surprise to borrowers who were not aware and had not prepared for them. The percent of the mortgage loan that closing costs account for are dependent on the amount of the loan. Typically, a larger mortgage loan will lead to a smaller percentage for closing costs while a smaller mortgage loan will lead to a larger percentage for closing costs.
The deposit is distinct from closing costs. The deposit is the initial payment that a borrower makes when purchasing the home. It is a relatively significant percentage of the total price of the home and is paid up front. Therefore, the deposit is thought to be the largest payment that the borrower will need to make when purchasing a home using a mortgage loan.
Closing Costs Explained
Closing costs are the processing fees that are required to establish and close a mortgage. These costs can include a wide array of items such as charges from the lender, home appraiser, title company, and any other third parties that may be involved in the mortgage loan transaction. It is important to note: The closing costs do not include the deposit. Simply, closing costs include the upfront fees involved with the purchase, or refinancing, of a home.
It is also possible for the seller to cover a percentage of the borrower’s closing costs. This is referred to as “Seller Concessions.” There are limits, however, to how much a seller can contribute to closing costs, which are directly based on the type of mortgage loan.
A few of the main and most expensive closing cost fees that borrowers should be aware of include the Broker Fee, Mortgage or “Discount” Points, Processing/Underwriting Fee, Title Search and Title Insurance, Escrow Fees, Home Appraisal, and Prepaid Taxes and Insurance. However, there are also a number of other mortgage lender fees, third-party fees, and prepaid items that will contribute to total closing costs.
Closing costs are an important item to keep in mind when shopping for a home and taking out a mortgage loan. They are independent from the deposit, but both are due at the close of the mortgage loan.