As you embark on your homebuying journey, you'll encounter a few financial checkpoints along the way. One of the key phrases you need to know is “cash to close” – it’s a crucial aspect of your homebuying experience.

Understanding what it means and why it matters can save you from any last-minute surprises and ensure a smooth path to unlocking the door to your dream home.

To help you better understand this financial aspect of homeownership, we’re diving into “cash to close” in simple, easy-to-follow terms and answering common questions homebuyers have to help you better navigate the journey.

What is “Cash to Close?”

“Cash to close” refers to the total amount of money a homebuyer needs to bring to the closing table to finalize the purchase of a property. Think of it as the grand total you’ll need to pay on the day you officially become the proud owner of your new home.

What Does My “Cash to Close” Go Towards?

“Cash to close” is made up of a few essential components:

Remaining down payment

The down payment is a lump sum you put down upfront, usually a percentage of the home’s purchase price. The down payment demonstrates your commitment to the purchase, and the percentage you put down will affect your mortgage terms.

When you signed the purchase agreement for your home, you likely made an earnest money or initial deposit. This ultimately goes toward your total down payment, the remainder of which you’ll pay at closing through your required cash to close amount.

Closing costs

Closing costs are fees associated with finalizing the home purchase. They cover services like appraisals, inspections, title insurance, and various administrative expenses. Closing costs can range from 2% to 5% of the home’s purchase price.

Escrow and prepaid charges

You might need to prepay certain expenses, like property taxes or homeowners insurance, which get deposited into an escrow account where your lender will hold the funds until the applicable payments are due. These types of fees will vary depending on your property and location.

Additional fees

Depending on your specific situation or the terms of your purchase agreement, there might be additional fees or costs to consider. Typical costs include:

• HOA fees
• Courier or delivery fees
• Recording fees for filing the deed and other legal documents with the appropriate local government office

Adding up these items will give you the total “cash to close” amount. It’s crucial to know this figure well in advance of the closing day. Having the necessary funds ready ensures a smooth transaction without any last-minute hiccups.