What Does Cash To Close Mean?
When you’re buying or refinancing a home, you’ll hear the term cash to close. It sounds simple enough – it’s the money you need to close the transaction. But what does it include and how does it work?
We dive into the details below.
What is Cash to Close?
Cash to close is the total amount of money you need for your real estate transaction to close. After you’ve gone through underwriting and gotten the ‘clear to close,’ you must make sure you have enough money to close the transaction.
In short, it’s money that you must bring to the closing in the form of a wire or cashier’s check to complete the transaction. In most ‘wet closings’ the loan cannot fund without you paying the money you owe first.
Closing Costs vs Cash to Close – What’s the Difference?
Don’t assume your closing costs are your cash to close. They play a role in it, but they aren’t the exact amount you’ll need. You might have a situation where the seller pays some of your closing costs, so you have a seller credit. You might even have a lender credit.
The Down Payment and Money to Close your Loan
Your down payment is another piece of the puzzle. But it’s not the full amount. If you made an earnest money deposit, it will reduce the amount of additional cash you must bring to the closing.
For example, you are making a 10% down payment, but you put down 2% as earnest money. You only owe an additional 8%, plus the closing costs and any other money that’s transferring hands at the closing.
Where to Find your Cash to Close
When you apply for a loan, you’ll receive a Loan Estimate. From this disclosure, you can estimate how much cash you’ll need to close, but it’s not a final number.
Three days before you are scheduled to close, your lender will provide you with a Closing Disclosure. This document states exactly how much money you need to close the loan. It considers the down payment, closing costs, any credits you’re given, and any earnest money you put down already.
How is Cash to Close Paid?
Any money you owe at the closing must be in ‘official funds.’ In other words, you must either wire it or bring a cashier’s check. Personal checks and cash aren’t allowed.
Receiving the closing disclosure at least 3 days before your closing usually allows enough time to ensure you have the necessary funds in time at the closing since the closer can’t disburse funds to the seller and other interested parties until all funds are received.
Final Thoughts
Knowing how much cash to close you need is an important step in the closing process. Not having the right amount of funds or in the right form can hold up your closing. If you have questions about how much money you owe, ask your loan officer as soon as you receive your Closing Disclosure to allow enough time for changes if necessary.