A Comprehensive Guide to Understanding Cash-to-Close:
Justin Reynolds
Key Takeaways
- Cash to close encompasses closing costs and additional expenses
- The number can change due to various factors between the Loan Estimate and Closing Disclosure
- Ask a loan officer for review of your cash-to-close line items
Welcome to your Cash-to-Close Discovery Page! Here, we'll delve into the complexities of cash to close, explain why it changes, and help you verify the final number. This page is designed to lower borrower confusion and support friction.
Cash to Close Definition
Cash to close refers to the total amount of money needed from the buyer at settlement, covering closing costs and any additional fees due.
Closing Costs vs Cash to Close
- Closing costs are fees paid by a homebuyer or seller for various services related to a real estate transaction.
- Cash to close includes closing costs and any additional amounts due at settlement, such as down payment, earnest money, and seller credits.
- Borrowers often confuse the two because cash to close encompasses all expenses needed for a successful home purchase.
The Cash-to-Close Formula
Cash-to-close is the total amount a homebuyer needs to bring to the closing table. It's calculated by adding down payment, lender fees, title and escrow costs, prepaid interest, taxes, insurance, and earnest money, then subtracting any seller credits. Check with your lender or agency for specific details.
| Line Item | What It Covers |
|---|---|
| Down Payment | Amount you pay upfront toward the home's purchase price |
| Lender Fees | Fees for loan processing and underwriting |
| Title and Escrow Costs | Fees for the title search, title insurance, and closing services |
| Prepaid Interest | Interest owed for the partial month before your first regular payment |
| Property Taxes | Taxes collected in advance for the escrow account |
| Homeowners Insurance | First year's premium, often collected at closing |
| Earnest Money Deposit | Your good-faith deposit, credited toward what you owe at closing |
| Seller Credits | Reduces the cash-to-close total by the amount the seller agreed to cover |
Real-life Cash-to-Close Examples
In a $250,000 home purchase, a borrower might be expected to pay a down payment of $50,000, closing costs totaling $6,000 (including title and escrow fees), prepaid interest of $3,000, property taxes of $1,500, homeowners insurance premiums of $800, and an earnest money deposit of $1,000. A $2,000 seller credit reduces this total rather than adding to it, bringing the cash-to-close total to $60,300.
Why the Number Changes Between the Loan Estimate and Closing Disclosure
Between the Loan Estimate and Closing Disclosure, changes in cash-to-close can occur due to prepaid interest, tax and HOA proration, third-party invoices, insurance actuals, and earnest money verification. Timing differences in these items may lead to variations in the total.
Wire Fraud Warning
Never wire funds based solely on emailed instructions. Always verbally verify wiring instructions by calling a known, independently-verified phone number for the title or escrow company -- not a number provided in the email itself.
- Never wire funds based solely on emailed instructions
- Verify wiring instructions by phone using a number you looked up independently, not one from the email
- If you suspect fraud, report it immediately to the title company and your bank
Our team is committed to ensuring your funds are securely transferred and your home purchase goes smoothly.
What to Do Before Wiring Funds
Before wiring funds for your closing costs, double-check your Closing Disclosure for accuracy. Verify that all charges are correct, and that there are no unexpected or unauthorized fees. If you have any questions about line items, reach out to your loan officer for clarification.
Ask a loan officer to review my cash-to-close line items.
This page is intended for informational purposes only and should not be construed as legal advice. Your specific situation may require consultation with a qualified attorney.
Ask a loan officer to review my cash-to-close line items.
What factors can cause cash to close to change?
Answer: Cash to close can fluctuate due to changes in loan amount, interest rates, closing costs, and unexpected fees.
How does cash to close differ from closing costs?
Answer: While both involve money needed for closing a mortgage, cash to close represents the amount the borrower needs to bring to the table at the closing, including earnest money and down payment; closing costs are fees paid by the buyer and seller for services related to the real estate transaction.
When should I expect the final cash-to-close total?
Answer: You'll receive the final cash-to-close total upon receiving your Closing Disclosure, which is provided at least three business days before closing.
What happens if my closing is delayed by a day or more?
Answer: If your closing is delayed for one day or more, you may be charged per diem interest, a daily rate of the mortgage payment, to cover the additional time your funds are not being invested.
Can I negotiate seller credits on my Closing Disclosure?
Answer: Yes, it's possible to negotiate seller credits, which can offset some of your closing costs or be applied toward your down payment. Keep in mind that any changes to the agreed-upon seller credits must be reflected in a new Closing Disclosure.
Why is the cash to close amount different on the Loan Estimate and Closing Disclosure?
Answer: The difference between the cash to close amounts on the Loan Estimate and Closing Disclosure can be attributed to changes in closing costs, loan estimates for prepaid items like taxes and insurance, actual costs from third-party providers, or adjustments in earnest money verification.
What should I do if my Closing Disclosure shows different insurance quotes than the previous estimate?
Answer: If your Closing Disclosure reflects a different insurance quote than the previous estimate, contact the insurance provider to clarify any discrepancies and ensure the correct amounts are included in the final cash-to-close total.
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