Down Payment vs. Closing Costs — Why First-Time Buyers Confuse Them
They're two completely different bills, both due at closing. Mixing them up at the application stage is one of the most common ways first-time buyers under-budget for the cash they need at the table. Here's the breakdown.
Down payment
The down payment is your equity contribution to the home — money that doesn't get borrowed. If you put 5% down on a $400,000 home, you bring $20,000 to closing as down payment, and the lender provides $380,000 as the loan amount.
Down payment goes toward the home itself. It reduces your loan-to-value ratio (LTV) and your monthly mortgage.
Closing costs
Closing costs are the fees charged at closing — completely separate from the down payment. Typical closing costs include:
- Lender fees: origination, underwriting, processing.
- Title fees: title insurance (lender + owner), title search, recording.
- Escrow fees: escrow service, settlement charges.
- Appraisal: independent property valuation.
- Inspection: usually paid up-front separately, but sometimes at closing.
- Prepaid items: property taxes (often 6–12 months), homeowners insurance (1 year), and prepaid mortgage interest from closing date to month-end.
Closing costs typically run 2–4% of the loan amount. On a $380,000 loan, that's roughly $7,600–$15,200.
Putting it together
| Scenario: $400K home, 5% down, FHA | Amount |
|---|---|
| Purchase price | $400,000 |
| Down payment (5%) | $20,000 |
| Loan amount | $380,000 |
| Estimated closing costs (3% of loan) | $11,400 |
| Total cash to close | $31,400 |
Indicative numbers. Actual closing costs vary by lender, title company, and property.
Where DPA helps with each
- Most DPA programs let assistance cover both down payment and closing costs. Home Plus, Home in Five, Chenoa, Arrive, and Essex all allow this.
- Some programs allow seller credits on top of DPA. Seller credits are negotiated in the contract — the seller covers a portion of your closing costs.
- Combining DPA + seller credits is how first-time buyers reach $0 (or near-$0) cash to close.
Common mistakes
- Budgeting only for down payment. 5% down on a $400K home is $20K — but you also need ~$11K for closing, so the real number is $31K.
- Forgetting reserves. Some loan programs require 1–6 months of housing payments in reserves after closing. That's not part of cash-to-close, but it's part of the total cash required.
- Inspection paid up-front. The home inspection (~$400–$800) is usually paid when scheduled, not at closing — easy to miss in the budget.
Frequently asked questions
Do you have to pay back down payment assistance in Arizona?
Usually no. Home Plus and Home in Five give the assistance as a forgivable or deferred soft second with no monthly payment, so you don't repay it as long as you keep the home and meet the program's terms. Only true repayable-second DPA gets paid back. Always check your specific program before you assume forgiveness.
How much down payment assistance can I get?
It depends on the program. Home Plus gives up to 4%, plus an extra 1% for Active Duty or Veterans, for up to 5% statewide. Home in Five gives up to 5%, plus 1% for teachers, first responders, military, Veterans, or income-qualified buyers, plus a 0.5% boost, for up to 6.5% in Maricopa County. See the current DPA figures.
What credit score do I need for Arizona DPA?
You need a 620 minimum credit score for Home Plus and 640 for Home in Five. That's higher than FHA on its own, which allows scores down to 580. Each DPA program sets its own floor, so aim for your program's minimum when you're using assistance in Arizona.
What are the income limits for Arizona DPA?
Home Plus caps borrower income at $155,386, or $146,503 when paired with an FHA, VA, USDA, or conventional HFA loan. Home in Five caps total household income at $157,360 as of June 10, 2026. These limits change, so confirm against the current DPA figures before you apply.
Do I have to be a first-time buyer to use DPA?
No, not for most Arizona programs. Home Plus and Home in Five both allow repeat buyers, so you can use them even if you've owned before. When a program does require "first-time" status, that simply means you haven't owned a home in the last 3 years, not that you've never owned one.
Can I combine two DPA programs?
No. You use one down payment assistance program per purchase; the programs don't stack with each other. What does layer is the DPA with your first mortgage. So a single program like Home Plus or Home in Five sits on top of your FHA, VA, USDA, or conventional loan to cover down payment and closing costs.
Does DPA work with FHA, VA, USDA, and conventional loans?
Yes, all four. Arizona DPA programs layer on top of FHA, VA, USDA, and conventional first mortgages, and the assistance can go toward your down payment, your closing costs, or both. That's how many first-time buyers reach near-$0 cash to close, especially when they also negotiate seller credits in the contract.
Next step
Related reading: