Down Payment

A Down Payment is the amount a buyer will pay as a percentage of the property’s sales price to obtain a mortgage on the balance of the sales price. A common confusion is between the down payment, closing costs, and what the buyer owes on the day of the closing. In practice, the closing costs the buyer has agreed to pay plus the Down Payment is due at the time of settlement on a property transaction. In the simplest transactions with a new mortgage only, the amount a buyer pays at settlement is the sales price of the property minus the mortgage money the bank will pay plus the closing costs the buyer has agreed to pay. The Down Payment is only implied in the total amount the buyer is expected to pay at closing. For example, a buyer purchases a property for $100,000 with a down payment of 5%. At closing the bank will come forward with funds to cover a mortgage for $95,000. If the closing costs that the buyer has agreed to pay total $2,500, the buyer will be expected to pay $7,500 at closing. The $7,500 will be stated on the HUD-1 as the amount due from the buyer. In most cases, the Down Payment amount will not be separately listed on the closing statement. On the purchase and sales agreement, the Down Payment is usually referred to as a percentage of the property sale price.