What makes up the cash needed at closing?

Cash to close: What do you need?


When it’s time for you to close on a new home and sign the mortgage paperwork, you’ll need to be ready with a check or proof of a wire transfer. The money involved is known as the “cash to close,” a term which is related to – but different from – the down payment and closing costs.Those two items are included in cash to close, but the total figure also includes other important elements. Be ready to produce more money than you might initially have counted on. These tips will help you understand every item contributing to cash to close:

Determining and paying cash to close

There’s a cash to close calculator section on a loan estimate form. Some of the items on this list are added to the closing costs, while others may offset expenses and subtract from the overall amount. As The Mortgage Reports pointed out, the various positive and negative adjustments to spending take several pages of paperwork in Closing Disclosure forms to sum up. These amounts fall into a few general categories.

  • The down payment is one of these elements. As The Mortgage Reports noted, this is the main monetary amount associated with buying a house. The price of the home minus the balance of a loan makes up the down payment.
  • Closing costs are another part of cash to close calculations. These expenses incurred during the home sale transaction include legal costs, appraisals and payments to the various professionals who work on the closing.
  • The deposit paid on the loan is a major subtraction. This is the money you as the buyer have already contributed to buying the property and comes directly out of the required down payment amount.
  • Credits and adjustments are applied in this section of the paperwork as well, representing programs designed to offset and reduce homebuying costs.
  • The initial investment used to create an escrow account is included in the cash to close amount. Escrow is used to gradually save money for charges, such as insurance and taxes, and it begins at the start of the loan. As Money Under 30 added, the amount used to seed an escrow account can range from two months’ taxes to a full year.

Being ready to complete the transaction

Money Under 30 explained that it’s best not to make calculations about homebuying readiness based just on the down payment. If you total all the expenses associated with closing on a new house, a back-of-the-envelope estimate is you’ll pay closer to 1.5 times the down payment. Performing these calculations can generate some uncertainty, but it’s better to plan carefully than to end up unable to pay the required amount.

The Closing Disclosure form is the document that lists the actual, finalized amount of cash needed to close the sale. The Consumer Financial Protection Bureau (CFPB) requires this information to be given to you three days or more in advance of the final closing. The Closing Disclosure will not only itemize your costs and credits, it will also put the numbers next to the loan estimate, showing what, if anything, has changed.

Homebuyers who come into their closing ready, with all the costs worked out and a check or wire transfer record ready, can expect a smooth process. Provided you’ve worked out the cash to close in advance, there won’t be worrisome financial surprises. First Centennial Mortgage is always here to help. Learn more about how the closing fits in with the six steps of the loan process.

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