The purchase amount is the amount you are paying for the house. It is inclusive of your earnest money. It is inclusive of your down payment. It is not inclusive of your closing costs.
When you make an offer by signing a contract, you’ll also pay a deposit called earnest money, usually 2- 5% of the purchase amount, to show that your interest in the house is serious. Paid by the buyer, earnest money is a portion of the purchase amount that is held by the escrow company while the transaction is in process. When the transaction closes, the earnest money is transferred to the seller as a portion of the original purchase amount. It is not an additional fee.
Closing costs are not a part of the purchase amount, but rather charges associated with the buyers loan, the transaction itself and prepayment required by the lender such as taxes and hazard insurance. Closing costs are paid at closing and are in addition to your funds to purchase the home. A conservative estimate of closing costs is about 3% of the purchase price. Some times its possible roll your closing cost expense into your purchase price or even have them paid directly by the seller, but this is conditional of current market conditions.
The down payment is a portion of the purchase price that the buyer is paying in cash. Down payments can range between 3 and 100% and each buyer, working with their lender, determines the best scenario for their particular purchase.
Upon entering into a contract to purchase a home for $200,000 (purchase amount) with earnest money of $5,000, the buyer’s earnest money check is deposited into the escrow company’s trust account. The buyer’s decide on a mortgage program with a 5% down payment ($10,000) and their closing costs total $3,750. The buyer will also pay prepaid taxes and insurance etc. The mortgage will be for 95% of the purchase amount ($190,000).
Down Payment $10,000
Closing Costs $3,750
Prepaid Taxes & Insurance $1,000
Earnest Money Credit ($5,000)
Additional Amount Collected $9,775
From Buyers at Closing
Purchase Amount $200,000
Buyer’s Closing Costs $3,750
Prepaid/Tax & Insurance $1,000
Total Cost to Buyer $204,750