What is cash to close?

When preparing to buy a home, you'll need more than just a down payment. There are additional closing costs to pay. Closing costs plus your down payment are known as cash to close – the amount you need at closing to finalize the sale.

Learn more about cash to close, how it differs from closing costs, and how to determine how much you need to close your sale.

Cash to close: A definition

Cash to close, also called funds to close, is the amount needed to close a real estate sale.

It typically includes your down payment and closing costs.

Unless you’re doing a dry closing, you’ll need to know the cash-to-close amount in advance so you can prepare the funds at closing.

Cash to close vs. closing costs: What’s the difference?

Closing costs are the fees you pay to your mortgage company to close on a house and transfer legal ownership.

Cash to close is the total amount – including closing costs – you need at closing to complete the sale.

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 type of mortgage, loan amount, down payment, and the state you live in. A few standard fees you might pay are listed below.

• Appraisal fees. A home appraisal is a professional, third-party estimate of a home's value. Lenders require appraisals to ensure the house is worth the amount they're lending.
• Attorney fees. In some states, you need a real estate attorney to finalize your title transfer. The fee covers the cost of having an attorney 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 the seller has the legal right to sell it to you. The search also looks for bankruptcies and liens that you might assume responsibility for if you buy the home. You only pay for title insurance once, at closing, and you have protection for as long as you own the home.
• Application fees: Lenders charge this fee 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 pay for 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 MIP fee. VA loans¹ may require a one-time VA funding fee. USDA loans require an up-front guarantee fee of 1% and an annual fee of 0.35%. Rocket Mortgage doesn’t currently offer USDA loans.
• 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 equals the total closing costs minus any fees rolled into the loan amount.

It also includes your down payment and subtracts any earnest money deposit you might have paid when your offer was accepted, plus any seller credits. Additionally, it consists of 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 accounts for a large share of your total cash to close. Your down payment is a percentage of your home's purchase price that you pay to your mortgage lender up front.
• Prepaid expenses. Home buyers may have to pay sellers for any prepaid costs the seller covered for the remainder of the year. These costs include property taxes 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 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?

The amount owed at closing can be found on your Closing Disclosure, a 5-page form that itemizes all your closing costs. By law, your mortgage lender is required to provide you with the standard Closing Disclosure at least 3 business days before closing.

Before you sign your mortgage, compare your Closing Disclosure with your Loan Estimate. If anything has changed from your Loan Estimate to your Closing Disclosure, you should discuss this with your mortgage lender.

Your Closing Disclosure explains critical aspects of your mortgage loan, including purchase price, loan fees, interest rate, estimated taxes, insurance, closing costs, and other expenses.

How to calculate your cash-to-close amount

You can estimate your cash-to-close amount using a simple formula that factors in your down payment, closing costs, deposits, and credits.

(Down payment + closing costs) - (deposits and credits) = total cash-to-close amount

The exact numbers will be outlined on your Closing Disclosure, but estimating your cash to close will give you a good idea of how much you’ll owe on closing day.

The deposits and credits you'll subtract from your down payment and closing costs include your earnest money deposit, seller credits, and lender credits.

How can you pay your cash to close?

You can pay your cash to close with more secure forms of payment, such as a cashier's check, certified check, or wire transfer. Credit cards, debit cards, and personal checks might be accepted, but aren't recommended.

Cashier’s check

A cashier’s check is certified by your bank. The bank initially uses its own money to pay for your charge. After the lender cashes your check, the bank withdraws the money from your account. Cashier’s checks include security features such as signatures and watermarks that make them difficult to counterfeit. You can get a cashier’s check by request at your local bank or credit union. Most lenders prefer these over certified checks.

Certified check

A certified check tells the lender you have enough money in your account to cover the cost. When you request a certified check from your local bank or credit union, they'll make sure you have sufficient funds in your account and sign your check. Finally, the bank locks the amount in your account until the lender cashes the check.

Wire transfer

Wire transfers allow you to electronically send money to your lender before closing. You can ask your bank to send a wire transfer in person, by phone, or online.

Most banks use the Society for Worldwide Interbank Financial Telecommunication (SWIFT) service to complete wire transfers. Ask your mortgage lender for their SWIFT address so you know where to send your funds.

Keep in mind that wire transfers are not immediate, and it may take a few days for your lender to receive the funds. Make sure you double-check the address before you send the money to your mortgage lender. Wire transfers are not reversible.

Cash

Though your lender may accept cash at closing, it's not recommended. Using cash to pay for your closing may raise questions about where the money came from. Some title companies and mortgage providers have banned cash payments during closing.

Credit or debit card

Your lender needs to know that you have the funds for closing costs in your account before they approve your loan. Credit cards allow you to borrow money from creditors, so they're risky for lenders. Credit card companies also block large and unusual charges based on your spending habits, so your closing costs will almost always be automatically blocked, even if you could use a debit card.

Your lender may allow you to use a secured credit card, which requires a cash deposit as collateral. Be sure to contact your lender to see if they accept secured cards at closing.

Personal check

Lenders will almost always require you to use a certified check, a cashier’s check, or a wire transfer instead of a personal check to cover your closing costs.

FAQ

Here are answers to some common questions about the cash-to-close process.

What does a negative cash to close mean?

Negative cash to close means the sum of your deposits and credits exceeds your cash to close. In short, it means you'll get money back on closing day. Consult with your mortgage lender if your cash-to-close amount is negative.

Can I negotiate my cash-to-close amount?

You can negotiate your closing costs, which can lower your total cash to close. You can ask the seller to cover a portion of your closing costs. You also can work with your mortgage lender or real estate agent to figure out a way to decrease the total amount you owe at the closing table. This includes the amount of your down payment. 

Can cash to close be rolled into my mortgage loan?

Your total cash-to-close amount can't typically be rolled into your mortgage, since certain expenses, such as your down payment, are due up front. Depending on the type of loan, you can roll some (or all) of your closing costs into your monthly mortgage payments.

What happens if I can’t pay the cash to close on time?

If you're unable to pay the cash to close on time, you can try to negotiate a later closing date or forfeit your earnest money. Saving cash to close, in addition to a down payment, can help mitigate these issues and prevent your deal from falling through.

Is there a difference between clear to close and cash to close?

Though both terms relate to the final stage of buying a property, they refer to different concepts. Clear to close means you’ve met all your lender’s requirements to close on the mortgage, while cash to close refers to the total amount of cash you’ll need to bring to the closing table.

The bottom line: Prepare ahead to pay the cash to close

For some prospective home buyers, the added expense of closing costs can come as a surprise. The best time to prepare and save for cash to close is before you start looking for a house. Learning how to budget for a house takes time and patience, but anticipating the total costs of homeownership will make the purchasing process easier.

If you’re ready to take the next step in your home-buying journey, start your loan application today with Rocket Mortgage.

¹ Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

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