During your home buying process, you might have heard the term cash to close. While cash to close might evoke images of showing up to closing with a duffle bag full of cash, that idea can be misleading since virtually no one uses paper money for cash to close.
Though your down payment and mortgage will cover the majority of the money required to purchase a home, there are some additional costs you have to think about before you close on the house and pick up your keys.
Let’s discuss what cash to close means, how it’s calculated and why it matters.
What Does Cash to Close Mean?
Cash to close is the amount of money you have to bring to settlement on the day of your closing. Whether you’re purchasing a home with a mortgage or cash, you’ll be responsible for some additional costs beyond the actual price of the home or down payment.
What’s the Difference Between Closing Costs vs. Cash to Close?
The difference between closing costs and cash to close is that closing costs are additional fees you must pay when you buy a house, while cash to close is the money you have to bring to closing.
Closing costs and cash to close are two common parts of every home purchase. Since they both reference sums of money associated with your home purchase, it can be easy to confuse the two. And, while closing costs determine your cash to close, it’s important to understand the distinction between each of these phrases.
Let’s break down closing costs and cash to close by discussing what comprises these figures.
Closing costs
Closing costs can vary depending on where and how you purchase your home. Different mortgage lenders charge different fees, as do different states and counties.
Some of the most common fees that make up closing costs on a home include:
- Attorney fees: If you hired an attorney to help you through the process of buying a home, you may have to pay their legal fees at closing.
- Appraisal fees: Most lenders require an appraisal to make sure the house is worth at least as much as you’re paying for it. The appraisal fee is the lender passing along the costs of hiring an appraiser to professionally evaluate how much the property is worth.
- Mortgage application and origination fees: Many lenders charge application or origination fees to cover some of the costs associated with reviewing your application and funding your mortgage.
- Title insurance: Title insurance can protect you or the lender from any third-party claims or title issues that might arise, even if it’s related to a problem that started long before you owned the home.
- Real estate transfer/excise taxes: Most items you buy are subject to sales taxes. Real estate can be subject to a similar tax, known as transfer or excise taxes. These taxes can vary by state and county and are usually a percentage of the sales price.
- Private mortgage insurance: Private mortgage insurance is usually required on mortgages with down payments under 20%. Private mortgage insurance protects the lender from losses if you default on your loan payments.
- Government loan-specific fees: Some government loan programs will have upfront fees to help reduce risk to the lender or to provide funding for future applicants to housing subsidization programs. These may include the U.S. Department of Veterans Affairs (VA) loan funding fee or the Federal Housing Administration (FHA) loan upfront mortgage insurance premium.
Cash to close
Cash to close consists of more than just the closing costs you have to pay. It’s a formula that encompasses a more complete picture of the costs of your home purchase that you need to pay at closing.
How Is Cash to Close Calculated?
Cash to close is calculated by subtracting any credits, like your deposits or any seller or lender credits, from your down payment and closing costs. Once you’ve accounted for the sale price of the property and the loan amount the lender agrees to pay on your behalf, a simple cash to close equation might look like this:
The down payment and your closing costs, minus any deposits and credits.
Your cash to close will be separated into two parts: debits and credits. Debits are items on your closing statement that indicate money you owe, while credits are money paid toward your balance.
Here’s a list of some common debits and credits that will determine how much cash you have to bring to closing when you buy a home.
| Debits | Credits |
| Down payment balance | Earnest money deposit |
| Loan origination fee | Seller concessions |
| Attorney fees | Lender credits |
| Real estate transfer tax | |
| Title insurance | |
| Prepaid property taxes | |
| Deed recording fees | |
| Prepaid interest | |
| Appraisal fee (if you haven’t already reimbursed your lender for it) |
A simple trick for reducing the amount of cash you have to bring to closing is to ask for seller concessions or a lender credit.
What is the Closing Disclosure and Where Can I Find It?
As a home buyer, you can find the cash to close amount on your closing disclosure. A closing disclosure is a standard five-page form that provides the details of your mortgage loan, and you can usually find the cash to close calculations on page 3.[1]
The purpose of a closing disclosure is to give you a chance to verify all loan information is correct and that you understand the costs and your financial obligations under the loan. All lenders are required by law to give you a copy of a closing disclosure at least three business days before closing.
What Forms of Payment Can I Use for Cash to Close?
Using actual cash to close is one instance where cash is not king, although you can technically come to closing with a briefcase full of paper money. For most home buyers, the best form of payment for cash to close is sending a wire transfer or bringing a cashier’s check.
However, you may be able to use other types of payments for cash to close, like a personal check, certified check or credit or debit card. Check with your real estate agent or the title company to make sure you come prepared with a valid form of payment.
Don’t Forget to Budget for Cash to Close
Though you can take out a mortgage to cover the majority of the money you need to buy a house, you’ll always need to have some money available to account for your cash to close. When you’re budgeting for a home purchase, remember to think about how much cash you need to close, since it can often end up being thousands of dollars.
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Consumer Financial Protection Bureau. “Closing Disclosure Explainer.” Retrieved July 2022 from https://www.consumerfinance.gov/owning-a-home/closing-disclosure/