Cash to Close: What You Need to Know

As you approach the final stretch of the home buying process, one term you want to be familiar with is cash to close. Although this term does not directly refer to actual cash, cash to close is important because it does refer to the out-of-pocket costs you’ll need to pay prior to receiving the keys to your new home. 

In this blog post, we take a deeper dive into what exactly cash to close is and what you can expect when figuring out the upfront costs associated with buying a home.

What Is Cash To Close?

Sometimes referred to as “funds to close,” cash to close is the total amount you are required to pay on the day of your closing. Your cash to close is made up of expenses such as your down payment, closing cost fees, and prepaid items. 

Cash To Close vs. Closing Costs: What’s The Difference?

Although closely related, cash to close and closing costs are two different things. Cash to close refers to the entire amount you need to pay at closing, including the down payment and any other costs associated with the mortgage. Closing costs are a portion of the total cash to close amount, and are made up of various fees charged by the lender to originate the loan and transfer ownership of the property. 

Cash to Close

Figures included as part of your cash to close amount may include:

• Down Payment: A percentage of the home’s purchase price paid upfront to the lender. 
• Total Closing Costs: The amount of upfront costs, minus your down payment, required to complete your real estate transaction. 
• Prepaids: Typically includes interest accrued on the loan between the closing date and end of that month, first year of homeowners insurance premiums, and other assessment costs. Some of these may be put into an escrow account.
• Credits: The amount(s) of any money already put down or fees already paid to your lender, shown as a deduction from your total cash to close. 

Closing Costs

The amount of your closing costs depends on the location of your home, the loan program you’ve selected, and your financial situation, among other factors. Common closing cost fees include: 

• Application or Credit Report Fee
• Appraisal Fee
• Home Inspection Fee
• Pest Inspection Fee
• Origination Charges
• Private Mortgage Insurance
• Property Taxes
• Title Insurance Fee

How to Know the Amount of Your Cash to Close

At least three days before your closing date, you will receive a five-page document called a Closing Disclosure. This document highlights the total fees and expenses you need to pay for your home loan. 

Page one of your Closing Disclosure shows a summary of the loan terms, projected payments, and costs due at closing, including separate totals for your closing costs and cash to close amounts. Pages two and three show a breakdown of how your closing costs and cash to close amounts are calculated.

How Cash to Close is Calculated

Let’s take a look at this hypothetical Calculating Cash to Close section from a sample Closing Disclosure shared by the Consumer Finance Protection Bureau:

In the sample above, you can see how all the fees, credits, and prepaids are added and subtracted to determine the final amount of cash to close. The formula generally used is: 

• Total amount of closing costs;
• MINUS any closing costs paid before closing and those rolled into the loan amount;
• PLUS down payment funds from the borrower;
• MINUS the borrower’s original deposit;
• MINUS any seller credits, adjustments, refunds, or other credits;
• EQUALS the total Cash to Close amount.

Ways You Can You Pay Your Cash to Close

The term cash to close is a little misleading since you will almost never pay this fee in cash. The method of paying your cash to close depends on which form(s) of payment your settlement company accepts. Common payment methods include:

• Wire Transfer: A wire transfer is an electronic way to send money to your lender.

• Cashier’s Check: A cashier’s check is a check that is issued and backed by the bank.

• Certified Check: A certified check is a form of a check that certifies that the check is legitimate and will not bounce as there are sufficient funds in your account.

Check with your lender and/or settlement company to verify which payment methods they accept for your cash to close. Make sure to do so a few days ahead of your closing date to avoid any last-minute scrambling.

Questions About Cash to Close?

Paying your cash to close is an exciting time, as doing so moves you one step closer to receiving the keys to your new home. Understanding that your cash to close is an out-of-pocket expense and knowing how much money you’ll need can help you avoid any surprises. It’s also important that you check with your lender and verify what type of payment methods they accept. Every loan is different and it can be helpful if you are proactive and communicate with your lender.

If you have additional questions regarding cash to close, we’re here to help. Contact one of our loan officers today and they will be happy to assist you!