Although purchasing a home is an exciting milestone, it can also be confusing, particularly when trying to understand all of the associated costs. “Total you get at closing,” sometimes referred to as “cash to close,” is one phrase that frequently causes confusion. This is the total amount of money that you will need to bring to the closing table in order to complete the purchase of your home.
Don’t worry, we’ve got you covered! This comprehensive guide will break down everything you need to know about cash to close including:
- What it is
- How it differs from closing costs
- How to calculate it
- How to pay for it
- FAQs
By the end of this guide you’ll be a cash-to-close expert and ready to confidently navigate your home closing.
What is Cash to Close?
Cash to close is the total amount of money you’ll need to bring to closing to finalize your home purchase. This includes:
- Down payment: The percentage of the home’s purchase price you pay upfront.
- Closing costs: Fees associated with the mortgage and closing process, such as appraisal, attorney, insurance, and escrow fees.
- Prepaid expenses: Costs like property taxes, homeowners insurance, and HOA fees that may need to be reimbursed to the seller.
- Deposits and credits: Any money you’ve already paid towards the down payment or closing costs, as well as any seller or lender credits you may have.
In essence, cash to close is the total of all closing costs less any credits or prepayments related to the purchase of a home.
Cash to Close vs. Closing Costs: What’s the Difference?
Although closing costs and cash to close are sometimes confused, they are not the same. Closing costs are the amounts you have to pay your mortgage company in order to finalize the loan closing. The total amount you’ll need to bring to closing, including closing costs and other expenses, is known as cash to close.
Here’s a table summarizing the key differences:
| Feature | Cash to Close | Closing Costs |
|---|---|---|
| Definition | Total amount of money needed at closing | Fees paid to the mortgage company |
| Components | Down payment, closing costs, prepaid expenses, deposits, credits | Appraisal, attorney, insurance, escrow fees |
| Calculation | Down payment + Closing costs – Deposits and credits | Varies depending on loan type, mortgage amount, and location |
How to Calculate Your Cash-To-Close Amount
Calculating your cash-to-close amount is simple. Just follow this formula:
(Down Payment + Closing Costs) – (Deposits And Credits) = Total Cash-To-Close Amount
For example, let’s say your down payment is $50,000, your closing costs are $5,000, you have a $1,000 deposit, and a $500 seller credit. Your cash-to-close amount would be:
($50,000 + $5,000) – ($1,000 + $500) = $54,000
How to Pay for Your Cash To Close
There are several ways to pay for your cash to close:
- Cashier’s check: A check certified by your bank, ensuring sufficient funds.
- Certified check: A check signed by your bank, guaranteeing the availability of funds.
- Wire transfer: An electronic transfer of funds from your account to your lender’s.
- Personal check: May be accepted, but not recommended due to potential delays.
- Credit or debit card: Not typically accepted due to risk and potential for large transaction blocks.
- Cash: Not recommended due to security concerns and potential restrictions.
Always consult with your lender to confirm their preferred payment methods.
Cash To Close FAQs
Here are some frequently asked questions about cash to close:
What does a negative cash to close mean?
A negative cash to close means the sum of your deposits and credits is higher than the sum of your down payment and closing costs. This essentially means you’ll receive money back at closing.
Can I negotiate my cash-to-close amount?
Yes, you can negotiate your closing costs, which can lower your total cash to close. You can also ask the seller to cover a portion of your closing costs.
Can cash to close be rolled into my mortgage loan?
Typically, your down payment can’t be rolled into your mortgage, but some closing costs may be. Consult your lender for specific options.
What happens if I don’t have enough cash to close?
If you don’t have enough cash to close, you may need to delay closing or explore alternative financing options.
The Bottom Line
Understanding cash to close is crucial for any home buyer. By knowing what it is, how to calculate it, and how to pay for it, you can confidently navigate the closing process and ensure a smooth transition into your new home.
Remember, your Closing Disclosure will list the total amount you’ll need to pay at closing. Don’t hesitate to ask your lender or real estate agent any questions you may have about cash to close or any other aspect of the home buying process.
Is cash to close out of pocket?
Yes, the cash to close amount is paid out-of-pocket by the homebuyer. It is not included in the mortgage loan or financed in any way. The buyer must have the ‘cash to close’ funds readily available to complete the real estate transaction.
This sum of money pays for the down payment, closing costs, pre-paid items such as property taxes and homeowner’s insurance, as well as any other closing-related costs that the mortgage loan is unable to pay.
The buyer must provide all necessary funds for the transaction, whether they come from savings, gifts, or other liquid assets. The buyer must make sure they have enough cash on hand to cover the whole amount at closing in order to complete the purchase of the house.
An estimate of the cash a buyer will need at closing to purchase the house is provided by the borrower. It includes the down payment, closing costs, and pre-paid costs. It does NOT include the mortgage loan amount, only the buyer’s funds.
For instance, the estimated cash needed to close would be $25K if your down payment was $20K and your anticipated closing costs were $5K.
This helps you know your cash needed for closing day.
How to Estimate Closing Costs?
Estimate buyer closing costs based on purchase price, location, and loan type. Closing costs include title insurance, appraisal fees, attorney fees, origination fees, prepaid property taxes, and insurance.
To determine the amount of closing costs, use this guide or the Smart Asset mortgage closing cost calculator to calculate the “Closing costs.”
Example: For a $300,000 conventional loan home in Illinois, approximate costs are:
- Closing costs to third parties: $5,000
- Lender origination fee: $1,500
- Prepaid expenses: $3,000
Total estimated closing costs: $9,500
Get more clarification on
The down payment is the amount of the purchase price of the home that the buyer must pay in full up front, usually 10% or less if they are taking out a mortgage loan. Cash to close includes the down payment plus all closing costs and prepaid items. Even though the down payment is a significant portion, there are other costs associated with closing that must be paid in addition to the down payment, such as prorated expenses, escrow deposits, and lender fees. The cash to close is the buyer’s total cash requirement.
The earnest money deposit is not typically included in the cash to close amount. The buyer deposits a certain amount of money known as the earnest money deposit (EMD) to show that they are sincerely interested in buying the house. It is paid at the time an offer is made and held in escrow until closing.
The earnest money deposit goes toward the down payment and closing costs but is accounted for separately. It is not included in the estimated or final cash to close amounts listed on the lender’s loan estimate or closing disclosure.
This is so that there is no need to bring the earnest money deposit to closing again because it was already paid at the time of the offer. Other closing expenses and fees that must be paid at settlement are included in the cash to close amount.
Therefore, even though the earnest money deposit helps the buyer with the down payment and other expenses, it is not included in the cash to close amount, which only includes amounts owed at the time of closing. The cash to close will not include funds like the EMD already paid earlier in the process.