You’re almost at the finish line of buying a home, when your lender says, “Don’t forget your cash to close.” Cue confusion. Isn’t that just your down payment? Not quite.
As your real estate agent or loan officer (aka your homebuying sidekick), we’re here to demystify what this term actually means — in plain language, no recycled phrasing.
Cash to Close: The Full Definition
Cash to close is the total amount of money you need to bring on closing day to finalize your home purchase. It includes your down payment plus other closing-related expenses.
No, you can’t pay in actual cash (despite the name). Most title companies require a secure wire transfer or certified funds.
What’s Typically Included in Cash to Close?
Here’s a breakdown of what goes into that final number:
- Down Payment: Your initial contribution toward the purchase price
- Closing Costs: Fees for things like the loan, appraisal, title services, and legal paperwork
- Prepaid Expenses: Items like homeowners insurance and interest that need to be paid before your first mortgage payment
- Escrow Account Setup: An upfront deposit for property taxes and insurance (if your lender requires escrow)
- Credits or Payments Already Made: This subtracts anything you’ve already paid, like earnest money or seller concessions
A Simple Example
Let’s say you’re purchasing a $375,000 home:
- Down payment: $37,500 (10%)
- Closing costs: $6,200
- Prepaid items: $2,300
- Escrow deposit: $1,000
- Earnest money already paid: $5,000
Your total cash to close = $42,000
Where to Find Your Final Amount
You’ll get a document called the Closing Disclosure at least three business days before closing. This outlines your exact cash to close and all loan details.
If anything looks off or confusing, don’t worry — your lender or agent (that’s us) will walk you through every line.
Can You Lower Your Cash to Close?
Sometimes, yes. Here are a few ideas:
- Negotiate with the seller to cover some closing costs
- Look into lender credits or shop around for better service fees
- Check out local programs that offer assistance with down payments or closing costs
What It’s Not
- Not just your down payment — it includes everything else required to close
- Not the same as reserves — lenders may ask you to show additional savings after closing
- Not optional — this is required to finalize the sale and receive the keys
Think of It Like…
Ordering at a restaurant: the down payment is your entree, but the bill also includes taxes, fees, and tip. Cash to close is the total check.
Helpful Tips
- Keep your funds in a verifiable account — large last-minute deposits can delay your closing
- Double-check wire instructions carefully to avoid fraud
- Don’t assume — ask your lender or agent for a detailed cost breakdown early
FAQs
Q: Can I use gift money to help cover cash to close?
A: Yes, but the source must be documented according to your loan type.
Q: What if my final amount is higher than expected?
A: Review your Closing Disclosure and talk to your lender immediately. Errors can sometimes be corrected.
Q: Is my earnest money part of the cash to close?
A: Yes, it’s applied as a credit and reduces the amount you owe at closing.
