Understanding the Mortgage Process: Here’s What to Know About Cash to Close

The mortgage process can be one of the most anxiety-ridden steps in achieving new homeownership. There are all the necessary documents to pull together, the need to avoid large purchases or opening lines of credit, and often, repeated requests for additional information along the way. And, one of the biggest pain points is understanding how much money you need to bring to the table when it finally comes time to close on your new home.

If all the mortgage terms, like “cash to close” and “closing costs,” have you scratching your head, you aren’t alone. Here’s what you need to know.

Cash to close is defined as the total amount of money you’ll have to bring to your closing in order to finalize your home purchase. You will want to pay attention to this number–which can fluctuate throughout the loan application process. Cash to close is sometimes referred to as funds to close.

Is cash to close the same as closing costs?

Simply put, no. Closing costs are the fees you will need to pay your mortgage company to close your home loan. Cash to close includes closing costs, but also includes additional costs, including down payment.

Understanding what goes into closing costs

While saving for a down payment, many homebuyers will overlook the additional costs incurred to close on the loan. Referred collectively as closing costs, these fees will vary according to the state, type of loan and borrowing capacity. Here are some of the most common fees associated with closing costs:

  • Appraisal
  • Attorney fees
  • Title insurance
  • Application fees
  • Origination fees
  • Private mortgage insurance
  • Pest inspection fee

The closing attorney will also search for bankruptcies, liens and other items that could put your new home at risk.

In addition, if you have a government backed loan–whether FHA, USDA or VA–there are additional financial requirements you will need to meet. For example, FHA loans require an upfront mortgage insurance premium of 1.75% plus a monthly fee. If you are going VA, you will need to pay a one-time VA funding fee.

So what is cash to close?

Simply put, cash to close includes the total of all closing costs minus any fees you are rolling into the mortgage. It adds in your total down payment, but then subtracts the amount of your earnest money deposit and any seller credits that were negotiated as part of the contract.

Your down payment makes up the largest share of your total cash to close. The amount of your down payment is calculated based on a percentage of your home’s purchase price, with the minimum dependent on the type of loan you are getting.

If you have already put additional money down or pre-paid closing costs, these will be deducted from your cash to close. When you receive your closing disclosure, review these line items carefully to be sure you receive whatever credits you are entitled to. Your closing disclosure is the document that discloses the amount you will need to bring to closing. It will itemize all your closing costs as well as add in your down payment to arrive at your cash to close calculation.

Compare your closing disclosure with your loan estimate. Your fees, interest rates and loan terms should be very close to the figures on your loan estimate. If you see a discrepancy, reach out to your mortgage lender for an explanation and potential correction.

How do you pay your cash to close?

In most cases, you will be required to bring a secure form of payment, such as a cashier check or certified check, or arrange for a wire transfer. Because of its added security features, a cashier’s check is usually favored over a certified check. You can request either form from your bank or credit union. A wire transfer is a great option if you are unable to visit your financial institution for a cashier’s or certified check. Most mortgage lenders will not allow cash payment since it is difficult to trace the origin of paper money.

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