When you reach your closing day, there are a few tasks you have to do before you can receive your new house keys. One of those tasks is paying your cash to close. While they occur at the end of your home buying journey, it’s important that you account for them at the beginning.

What Is Cash To Close?

The last step before officially becoming a homeowner is reviewing your Closing Disclosure and the amount you’ll need to pay for your closing costs and cash to close. Your cash to close, also known as “funds to close,” is the amount of money required to complete the purchase of your home, and is the total amount of money you’ll pay during your closing.

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

Cash to close refers to the total amount of fees and expenses you need to pay in order to complete your home purchase. Closing costs are a portion of that payment, comprised of several different fees related to your home purchase. It’s essential that you avoid being surprised by closing costs and account for them early, just as you would your down payment, since they will make up a portion of your out-of-pocket expenses.

How to Estimate Your Cash to Close

Calculating your cash to close involves:

  1. Adding all of your closing costs
  2. Adding your down payment
  3. Subtracting any previous funds that were already deposited

When looking to estimate how much your cash to close will be, a general rule of thumb is that your cash to close will be around 2-5% of the home’s price. There are a range of different fees you may have to pay when you reach your cash to close, such as private mortgage insurance (PMI), property-related fees, and loan-related fees.

Below are a few fees you may come across when you reach the cash to close stage.

  • Application Fees — To process your loan, lenders often charge an application fee.
  • Appraisal Fees — Lenders will ask a third-party entity to come and conduct a home appraisal. This will ensure that the property is worth the asking value.
  • Down payments  — Likely the most significant portion of your cash to close will be made up of your down payment. As everyone has their own unique home buying process, in some instances, depending on your loan, you may not need a down payment.
  • Taxes — Depending on the purchase agreement, taxes may be split between buyers and sellers, or they may be paid by one or the other. Property taxes are the main tax you will find associated here.
  • Origination charges — Lenders charge a fee to underwrite your loan.
  • Prepaid items — Here is where you will find expenses like PMI and hazard insurance. As they are not a cost of financing but homeownership, lenders typically create an escrow account for borrowers who put down less than 20% to ensure payments can be made.

Fees are dependent on borrowers’ unique needs and situations. Some government-backed loans such as FHA, USDA, and VA loans also offer aids such as down payment and closing cost assistance.

Ways You Can You Pay Your Cash to Close

Once you have calculated all of your costs, the next step is paying for them. Although it’s called cash to close, cash is rarely accepted by lenders. When you’re ready to pay for your cash to close, there are a few ways you can go about doing so. Here are a few ways you may be able to pay for your expenses:

  • Cashier’s Check
  • Certified Check
  • Wire Transfer
  • Credit or Debit Card
  • Personal Check

Reaching Cash to Close

Reaching cash to close means you’re on the cusp of sealing the deal on your new home. Determining your expenses for cash to close is different for every individual. It’s vital that you avoid surprises and account for these fees and expenses ahead of time.

If you have any additional questions regarding cash to close or the mortgage process in general, contact one of our loan officers today!

The included content is intended for informational purposes only and should not be relied upon as professional advice. Additional terms and conditions apply. Not all applicants will qualify. Consult with a finance professional for tax advice or a mortgage professional to address your mortgage questions or concerns. This is an advertisement. Prepared 7/18/2020.