Down Payment vs Closing Costs: What Each Covers
Your down payment is the part of the purchase price you pay yourself instead of borrowing, and closing costs are the upfront costs of getting the loan and completing the purchase. They are separate: the CFPB defines closing costs as excluding your down payment, and you pay both, along with prepaids and any required reserves, as your cash to close.
What is the difference between a down payment and closing costs?
A down payment reduces what you borrow. Closing costs pay the people and agencies involved in the loan and the transfer. The Consumer Financial Protection Bureau (CFPB) defines closing costs as the "total upfront costs associated with your loan and real estate transaction, excluding your down payment."
| Question | Down payment | Closing costs |
|---|---|---|
| What is it? | The share of the price you pay yourself instead of borrowing | Upfront charges for the loan, services, taxes and fees, prepaids and an initial escrow payment |
| How is it sized? | A percentage of the purchase price, set by the loan program and your lender | Freddie Mac says 2% to 5% of the purchase price as a general range |
| Can the seller pay it? | No. Fannie Mae and HUD say seller contributions cannot be used for the required down payment | Yes, within limits by loan type |
| Can gifts cover it? | Often. Fannie Mae says gift funds may fund all or part of the down payment | Often. Fannie Mae says gift funds may fund closing costs too |
| Can assistance programs cover it? | Some programs, depending on their terms | Some programs, depending on their terms |
| Can a lender credit lower it? | No | Yes, in exchange for a higher interest rate (CFPB) |
Sources: CFPB closing disclosure, Freddie Mac, Fannie Mae interested party contributions, HUD Handbook 4000.1, Fannie Mae gifts, CFPB on lender credits, CFPB Loan Estimate guide. Read October 15, 2026.
How much is the down payment on each loan type?
It depends on the program, and the minimums run from none to 3.5% of the price.
| Loan type | Minimum down payment | Source and date |
|---|---|---|
| Conventional (Fannie Mae HomeReady, Freddie Mac Home Possible) | As low as 3%, with an income limit of 80% of area median income | Fannie Mae and Freddie Mac product pages, read October 15, 2026 |
| FHA | As low as 3.5% of the purchase price | HUD, FHA loans page (undated), read October 15, 2026 |
| VA | Often none, if the sales price is not higher than the appraised value | VA, purchase loan page, updated January 7, 2026 |
| USDA guaranteed | 100% financing for buyers who qualify | USDA Rural Development, last modified June 22, 2026 |
Lenders can set requirements above the program minimum. For the programs in detail, see how much down payment you need in 2026.
How much are closing costs compared with the down payment?
Closing costs are often a smaller bill than a down payment on a conventional or FHA loan, but they are not small. At the September 2026 national median existing-home price of $417,500 (NAR, released October 13, 2026), Freddie Mac's 2% to 5% range for closing fees is $8,350 to $20,875, and the minimum down payments work out as follows.
| Loan type | Minimum down payment | Closing costs (2% to 5%) | Both together, before credits |
|---|---|---|---|
| FHA (3.5% down) | $14,613 | $8,350 to $20,875 | $22,963 to $35,488 |
| Conventional (3% down) | $12,525 | $8,350 to $20,875 | $20,875 to $33,400 |
| VA (no down payment) | $0 | $8,350 to $20,875 | $8,350 to $20,875 |
| USDA (no down payment) | $0 | $8,350 to $20,875 | $8,350 to $20,875 |
These are planning illustrations as of October 15, 2026. They leave out program fees such as the FHA upfront mortgage insurance premium (1.75% of the base loan amount, with exceptions), the VA funding fee (2.15% for a first-use purchase with less than 5% down, unless exempt) and USDA's upfront guarantee fee (1.00% for fiscal year 2027). Your Loan Estimate shows whether each is paid at closing or added to the loan. Other sources count closing costs differently: LodeStar Software Solutions reported a 2025 average of $4,528 (1.04% of the price) from lender quotes, which excludes prepaids and escrow deposits. See closing costs explained for why the numbers differ.
Is the down payment part of the closing costs?
No. They are two lines that add up to your cash to close. The CFPB describes the Estimated Cash to Close as "the estimated amount of money you will have to bring to closing." Credits, such as a seller concession or lender credit, reduce that total, and gifts or assistance change who supplies the money. Our guide to what cash to close is shows each piece, and how to lower your cash to close covers the levers.
Can I put the money I have toward only one of them?
You need both, and the split affects your loan. A larger down payment means a smaller loan, and money spent on closing costs does not reduce the loan. If you are short, ask your lender how a smaller down payment would change your costs, and compare the total cost of each option rather than only the cash due at closing.
Who can help with each one?
- Seller: can contribute to closing costs within published limits (Fannie Mae conventional: 3%, 6% or 9% by loan-to-value; FHA: up to 6% of the sales price; VA: 4% of reasonable value; USDA: 6% of the sales price), not to the required down payment.
- Family and friends: Fannie Mae's Selling Guide says gifts may fund all or part of the down payment, closing costs or reserves, with a signed gift letter. NAR's 2025 Profile of Home Buyers and Sellers found that 22% of first-time buyers used a gift or loan from family or friends toward their down payment. Your lender decides what documentation it accepts.
- Programs and employers: HUD says it has no direct grant programs to homebuyers for down payment or closing cost assistance, so help comes from state and local agencies, nonprofits, lenders and some employers. Employer contributions are not currently supported on Dreamfund. Browse the down payment assistance hub and the first-time homebuyer hub.
Frequently asked questions
What is the difference between a down payment and closing costs?
A down payment is the part of the purchase price you pay yourself instead of borrowing. Closing costs are the total upfront costs of the loan and the real estate transaction, excluding the down payment, according to the CFPB. You pay both, and together with prepaids and any required reserves, less credits, they make up your cash to close.
Do you pay closing costs and a down payment?
Yes. They are separate bills. Some loans, such as VA and USDA, can require no down payment for buyers who qualify, but closing costs still apply.
Can the seller pay my down payment?
No. Fannie Mae and HUD say seller (interested party) contributions cannot be used for the borrower's required down payment. They can help with closing costs within published limits.
Which is bigger, the down payment or the closing costs?
It depends on the loan and the price. At a $417,500 home, a 3% conventional down payment is $12,525 and Freddie Mac's 2% to 5% closing cost range is $8,350 to $20,875, so either can be larger. On VA and USDA loans with no down payment, closing costs are the main upfront bill.
Can gift money be used for both?
Often. Fannie Mae's Selling Guide says gift funds may fund all or part of the down payment, closing costs or financial reserves on a conventional loan. Other programs have their own rules, and your lender decides what documentation it accepts.
Cover both bills with your people
Dreamfund is building a way for family and friends to give toward a buyer's down payment goal. Join the waitlist to hear when it opens.
Join the waitlistDreamfund is not a bank and does not hold customer funds. Upon launch, each customer's savings will be held in a deposit account opened in the customer's own name at an FDIC-member institution. FDIC deposit insurance applies to deposits at the member bank subject to applicable limits. Dreamfund itself is not FDIC-insured and does not guarantee any savings outcome. This article is for informational purposes only and does not constitute financial, mortgage, or legal advice. Down payment requirements, closing costs, credits and assistance programs vary by lender, location, loan and eligibility and are subject to change. Consult a licensed mortgage professional for guidance specific to your situation.