What Is Included in Cash to Close for a House?

When purchasing a home, understanding the financial obligations beyond the agreed-upon sale price is important. This sum, known as “cash to close,” is the money a homebuyer provides on the closing day to finalize the transaction. It includes various expenses and upfront payments required to transfer ownership and secure a mortgage. Preparing for this amount is a significant step in the homebuying process, impacting your financial readiness to complete the purchase.

The Two Main Components

The cash needed at closing consists of two financial categories: the down payment and closing costs. These components determine the final amount a buyer must bring to the closing table.

The down payment is the initial portion of the home’s purchase price that the buyer pays upfront. This payment reduces the amount borrowed from a lender, lowering the loan principal. It also demonstrates the buyer’s financial commitment to the property, which can influence loan terms and interest rates. Down payments are calculated as a percentage of the home’s total purchase price, varying based on loan type and lender requirements.

Beyond the down payment, closing costs encompass fees and expenses incurred by both buyers and sellers during a real estate transaction. These costs cover services and charges related to processing the home purchase and securing the mortgage. While the down payment is a direct contribution to the home’s equity, closing costs are transactional fees that enable the sale and loan to proceed.

Detailed Breakdown of Closing Costs

Closing costs are a diverse group of fees, ranging from 2% to 5% of the loan amount, covering services required to finalize a home purchase. These charges are paid at closing and include expenses from various parties involved.

Lender-related fees are charged by the financial institution for processing and underwriting the mortgage loan. A loan origination fee, between 0.5% and 1% of the total loan amount, compensates the lender for administrative work, including processing and funding the loan. Borrowers might encounter an application fee, ranging from $200 to $500, and an underwriting fee, which can be between $300 and $750, covering the cost of evaluating the loan application. Credit report fees, around $35, and appraisal fees, ranging from $500 to $1,000, are also charged by the lender to assess the borrower’s creditworthiness and the property’s value.

Title and escrow fees ensure clear ownership and facilitate the transaction. A title search fee, between $75 and $200, is paid to investigate public records for any claims or liens against the property. Title insurance, which protects both the lender and the owner from future title disputes, can cost between $500 and $3,500, varying by property value and state. Escrow fees, sometimes called settlement fees, cover the services of a neutral third party who holds funds and documents until all conditions of the sale are met; these range from 1% to 2% of the purchase price or can be a flat fee. Notary fees, between $50 and $200, are also part of this category for verifying signatures on legal documents.

Prepaid expenses and initial escrow account setup are also included in the cash to close. These costs are paid at closing and cover future expenses related to homeownership. This includes prepaid property taxes, where a portion of upcoming taxes may be collected to ensure future payments. Prepaid homeowner’s insurance premiums for the first year are due at closing. An initial deposit into an escrow account is common, which holds funds for future property tax and insurance payments, covering two to three months of these expenses.

Government recording fees are charges by local government entities to officially register the transfer of property ownership and the mortgage lien in public records. These fees vary by county and document size, with costs for recording a deed or mortgage ranging from $60 to $150, and additional pages incurring small per-page fees. Some localities also impose transfer taxes, which are assessed on the transfer of property ownership and can be a percentage of the sale price.

Other fees might include attorney fees, applicable in states where legal representation is required or chosen for real estate transactions, ranging from $500 to $1,500 for flat fees. Survey fees, between $400 and $700, may also be required to verify property boundaries.

Understanding Your Closing Documents

Homebuyers receive specific documents to itemize and clarify the exact “cash to close” amount required for their home purchase. These documents are standardized and provide transparency regarding all financial aspects.

The Loan Estimate (LE) is a three-page document provided by the lender within three business days of a loan application. Its purpose is to offer an initial estimate of the loan terms, interest rate, projected payments, and estimated closing costs. The Loan Estimate serves as a tool for comparing offers from different lenders, detailing the estimated cash needed at closing.

Following the Loan Estimate, the Closing Disclosure (CD) is a five-page form that presents the final statement of all loan terms and actual closing costs. Lenders are legally required to provide this document at least three business days before the scheduled closing date. The Closing Disclosure itemizes the precise “cash to close” amount the buyer must bring, reflecting any changes from the initial Loan Estimate.

Buyers should compare the Loan Estimate with the Closing Disclosure to identify any significant discrepancies. While some changes are normal, such as adjustments to property taxes or insurance premiums, major differences in lender fees should be questioned. The “cash to close” figure on the Closing Disclosure is the exact amount to be remitted to complete the transaction. Funds are transferred via wire transfer or a certified bank or cashier’s check on the closing day.