Cash to close meaning and how it affects your homebuying journey

Quick insights

• Cash to close is the total amount of money you need to bring to your home closing, including your down payment, closing costs and other fees.
• Closing costs are just one part of cash to close, which also factors in pre-paid expenses, earnest money and credits or deposits.
• When it’s time to pay, accepted methods include cashier’s checks, certified checks or wire transfers. Your total amount due should be included in your Closing Disclosure document.

If you’re getting ready to buy a home, you’ve likely stumbled across the phrase “cash to close” and wondered what it meant. Many homebuyers don’t fully understand the cash to close meaning and how it affects their individual homebuying journeys.

The good news is it’s not complicated. Understanding the ins and outs of cash to close will help you walk into your closing with confidence (and walk out with the keys to your new home in hand).

This article will break down what cash to close is, what it includes and how to make the payment when the time comes.

What is cash to close?

So what’s the meaning of “cash needed to close?”

Cash to close is the total sum of money you’ll need to bring to the closing table to finalize your home purchase. This figure includes more than just the down payment or closing costs—as some people may assume—but instead, it’s a comprehensive amount that rolls in everything required to officially close the deal.

Your lender will provide you with a Closing Disclosure at least three business days before your scheduled closing date.ec-consumer-cls-disclosure This document will detail the exact amount of cash you need to close and what makes up that number so you can plan accordingly.

Are closing costs the same as cash to close?

Closing costs aren’t the same as cash to close.

Closing costs include any fees for the services involved in your home purchase, while cash to close includes all those closing costs plus your down payment, prepaid expenses, credits or deposits—such as earnest money and per diem mortgage interest.

Some closing costs to expect may include:

• Appraisal fees
• Title insurance
• Attorney fees
• Loan origination fees
• Government taxes
• Tax service provider fees
• Prepaid expenses, such as property taxes, homeowners insurance and interest until your first payment is due
• USDA, FHA or VA fees (Chase does not offer USDA loans at this time.)

Closing costs vary widely, but they’re typically an average of 2–5% of a home’s purchase price. According to Freddie Mac at the time of publication, on a $200,000 purchase, you can realistically expect to pay between $4,000 and $10,000 on closing costs.ec-understanding-homebuying-costs

The variation is due, in part, to the number of individual costs that go into the sum of the whole and their individual variation. There may also be differences in attorney fees, appraisal fees and more.

What are common cash to close expenses?

Here’s a breakdown of what each of those terms mean:

• Down payment: The down payment is the percentage of your home’s purchase price that you pay upfront. While the traditional benchmark is 20%, some loans allow much smaller down payments. For example, Federal Housing Administration (FHA) loans require just 3.5%, while VA loans may not require a down payment at all.
• Closing costs: Again, closing costs typically range from 2–5% of the purchase price. These fees cover the services necessary to complete your home purchase, like title searches, appraisals and recording fees.ec-understanding-homebuying-costs
• Pre-paid expenses: These are costs you need to pay in advance at closing and may include homeowners insurance premiums, property taxes and homeowners association (HOA) fees. They are typically held in an escrow account by your lender and disbursed on your behalf when payments are due.
• Interest: Depending on the timing of your closing, your lender may request per diem (daily) interest for the remaining days of the month. This bridges the gap between your closing date and the start of your monthly payments.

How can I pay my cash to close?

When it’s time to close, you’ll need to pay your cash to close in one lump sum. There are a few accepted methods to make the payment:

• Cashier’s check: This is a commonly accepted method, issued by your bank and backed by guaranteed funds.
• Certified check: A certified check is similar to a cashier’s check, but it’s drawn directly from your account with confirmation of sufficient funds.
• Wire transfer: This allows you to send money directly to your escrow or title company. Be sure to call and verify wire details to avoid scams.
• Personal check: Some lenders might accept personal checks, but always double-check beforehand.
• Credit or debit card: These are rarely accepted for cash to close because of transaction limits but may be an option. Again, check with your lender beforehand.
• Cash: Usually not allowed due to security concerns, cash is an option in certain cases and may be convenient for some homebuyers.

The role of seller credits

A little-known tip that may help ease the burden of cash to close is something called “seller credits.”

These are concessions offered by the seller to cover part of the closing costs. For example, if a seller agrees to a $5,000 credit, that amount is deducted from your total closing costs, thereby lowering your cash to close.

Seller credits are often used in competitive real estate markets to sweeten offers or negotiate better terms, making them a fantastic opportunity to minimize your out-of-pocket expenses.

Be sure to discuss this option with your real estate agent or lender to see if it might be a viable strategy for your situation.

What is cash to close to borrower?

Cash to close to borrower refers to the funds a borrower receives back at closing, either in an initial home purchase or a refinance.refinance-hl000061 It’s the net amount a borrower receives back after all credits and adjustments are applied.

In a Closing Disclosure, this amount generally appears as the “Total Paid Already By Or On Behalf Of Borrower At Closing.” If that number is higher than the total due from the borrower at closing, you may receive some money back when you sign the final paperwork.ec-closing-disclosure-cfpb

Though some people might assume this equates to “free money,” that’s not the case. It’s simply a refund of money you overpaid along the way.

How to figure out estimated cash to close expenses

One of the most common questions homebuyers ask is, “how do I figure out my cash to close?”

The good news is this isn’t a mystery, where a surprise sum is sprung upon you when it’s time to close. Instead, it’s a formula you can easily calculate for yourself.

The basic equation most lenders use to estimate cash to close is: (Down Payment + Closing Costs) − (Deposits and Credits) = Total Cash-to-Close Amount

Don’t want to do the math? You probably don’t need to break out the calculator. In most cases, your cash to close amount will also be detailed in your Closing Disclosure document. This is typically provided three days before closing and outlines all the costs involved in your home purchase.ec-consumer-cls-disclosure

Cash to close FAQ

Can you roll your cash to close into the mortgage?

While some closing costs can be rolled into your mortgage loan, there are some cash to close expenses that can’t. For example, your down payment is due upfront.

What does cash to close mean on a loan?

Cash to close refers to the money you need to pay upfront at closing to finalize your mortgage and home purchase. This doesn’t include the loan amount you’ll borrow, but instead covers your portion of the costs.

How accurate is estimated cash to close?

While estimates can be very close to your final number, variations can occur due to last-minute adjustments in pre-paid taxes, homeowners insurance or escrow reserves. Double-check your Closing Disclosure within three days before the closing to ensure accuracy.ec-consumer-cls-disclosure

What is negative cash to close?

Negative cash to close is when credits (such as seller concessions or mortgage credits) exceed your total down payment and closing costs. This means you could actually walk away with money, as the excess credit will either cover additional costs or be refunded to you.

In summary

Understanding cash to close and everything it entails is a key part of the homebuying process. Whether it’s accounting for your down payment, closing costs or factoring in seller credits and deposits, staying on top of these details means fewer surprises along the way.

As with everything else in the homebuying journey, the key to managing your cash to close is preparation. Check your Closing Disclosure, account for all credits (like seller and lender contributions) and set aside some money so you won’t feel caught off guard when you’re asked to make that payment at closing.