A mortgage loan involves various costs beyond the principal amount you borrow, and two key components are the down payment and closing costs.

Here's an explanation of the difference between them:

Down Payment:

• Definition: The down payment is a percentage of the home's purchase price that the buyer pays upfront from their own funds. It is not included in the mortgage loan amount.
• Purpose: The down payment demonstrates the buyer's financial commitment to the purchase and reduces the lender's risk. It also helps determine the loan-to-value ratio (LTV) – the loan amount relative to the property's value.
• Amount: Down payment percentages vary but commonly range from 3% to 20% of the home's purchase price. Some government-backed loans may require lower down payments.

Closing Costs:

• Definition: Closing costs are fees and expenses associated with the process of finalizing the real estate transaction. These costs are incurred by both the buyer and the seller.
• Components: Closing costs may include fees for services like appraisal, title search, attorney fees, loan origination, home inspection, and escrow services. Additionally, there may be prepaid items like property taxes and homeowners insurance.
• Amount: Closing costs typically range from 3% to 5% of the home's purchase price.
• The exact amount varies based on factors like location, loan type, and the specific services required.

In summary, the down payment is the initial lump sum paid by the buyer when purchasing a home, expressed as a percentage of the home's price.

On the other hand, closing costs encompass various fees and expenses associated with the home buying process and are incurred by both the buyer and the seller.

While the down payment is part of the buyer's upfront investment, closing costs are additional fees paid to third parties involved in facilitating the real estate transaction.