What Is Cash To Close?

When you buy a home, do you know what costs and cash you’ll need to pay at closing? If you aren’t sure what “cash to close” means, what your closing cost amounts are or how to pay them, read on to learn more.

Cash To Close: Definition

Cash to close (also called “funds to close”) refers to the total amount of money you’ll need to pay on closing day to finalize your home purchase or real estate transaction. Unless you’re doing a dry closing, you’ll need to know ahead of time what the cash-to-close amount will be so you can prepare the funds at closing.

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

Your cash to close and closing costs are interconnected but are still different. Closing costs refer to the fees you pay to your mortgage company to close on your home loan. The cash to close is the total amount – including closing costs – that you’ll need to bring to your closing to complete your home purchase.

Let’s go over some of the costs associated with closing on your new home versus those included in your cash-to-close amount.

Closing Costs

The specific closing costs you pay depend on your loan type, mortgage amount, down payment and the state you live in. A few common fees you might pay are listed below.

• Appraisal fees: A home appraisal is a professional third-party estimate of how much the house you’re buying is worth. Lenders require appraisals to ensure the house is worth the amount they’re lending.
  
  
• Attorney fees: In some states, you hire a real estate attorney to finalize your title transfer. The attorney fee covers the cost of having a legal expert look over your paperwork.
  
  
• Title insurance: Title insurance protects you from third-party claims to your home’s new title. Title insurance companies make sure that the person selling you the home has the rights to the title. They also search for bankruptcies, liens and other factors that might cause you to lose your home. You only pay for title insurance once during closing and you have protection for as long as you own the home.
  
  
• Application fees: Lenders charge application fees to process your mortgage application.
  
  
• Loan origination charges: Mortgage lenders charge origination fees to underwrite your loan.
  
  
• Private mortgage insurance (PMI): If you buy a home with less than 20% down on a conventional mortgage, your mortgage lender will require you to buy private mortgage insurance (PMI). PMI helps protect your lender if you default on your loan. Once you reach 22% equity in your home, your PMI is automatically canceled. You may pay your first month’s PMI premium at closing.
  
  
• FHA, USDA or VA fees: If you take out a government-backed loan, you might have to pay a fee to the agency that backs the loan. These fees cover administrative costs and keep the programs going. For FHA loans, an upfront mortgage insurance premium (MIP) of 1.75% is required as well as a monthly fee. VA loans may require a one-time VA funding fee and USDA loans require an upfront guarantee fee of 1% and an annual fee of 0.35%. Rocket Mortgage® doesn’t offer USDA loans at this time, however.
  
  
• Pest inspection fee: In some states, and on VA loans, you must pay for a pest inspection before you can close on your mortgage.

Cash To Close

Cash to close includes the total closing costs minus any fees that are rolled into the loan amount. It also includes your down payment and subtracts the earnest money deposit you might have made when your offer was accepted, plus any seller credits. Additionally, it includes any refunds for overpayments and other credits.

Here are the costs that make up the typical cash-to-close amount:

• Down payment: Your down payment likely makes up a large percentage of your total cash to close. Your down payment is a percentage of your home’s purchase price that you pay upfront to your mortgage If you get a certain type of government-backed loan (like a VA loan), you may not need to make a down payment.
  
  
• Prepaid expenses: Home buyers may have to reimburse sellers for any prepaid costs that were covered by the seller for the remainder of a year. These costs include property taxes, homeowners insurance and HOA fees. Your lender will usually hold the amount you owe for these expenses in an escrow account.
  
  
• Deposits and credits: If you’ve already put down money for a down payment with your lender or paid closing costs, you may see a deduction in your cash to close. Any seller or lender credits you have will also be deducted from your cash to close. Remember to keep careful records so you can discuss any discrepancies with your lender.

Where Can You Find The Amount Owed At Closing?

You can determine how much you need to pay for each of your closing costs by looking at your Closing Disclosure. You should review it closely to make sure your lender credited you for any prepayments.

Your Closing Disclosure itemizes your closing costs, telling you exactly how much you owe for each fee or charge. Your cash-to-close amount is usually higher than your total closing costs because it includes your down payment.

Before you sign your mortgage, compare your Closing Disclosure with your loan estimate. The charges, interest rate and loan terms on your Closing Disclosure should be very similar to your loan estimate. If anything has changed from your loan estimate to your Closing Disclosure, you should discuss this with your mortgage lender.

How To Calculate Your Cash-To-Close Amount

Borrowers won’t be required to calculate the cash-to-close amount on their own; the amount owed at closing will be outlined on the Closing Disclosure document. However, understanding how to calculate your estimated cash to close could give you an idea of what you owe on closing day.