How Much Cash May Be Needed at Closing

What is Cash to Close?

Cash to Close is the amount of money you'll have to pay at closing. Your Loan Estimate shows an estimate of it. Your Closing Disclosure shows the actual amount.

Cash to Close includes your down payment and closing costs. It subtracts any deposit you've already paid to the seller, any amount the seller agreed to pay toward your closing costs and other adjustments.

You'll typically pay Cash to Close by cashier's check or wire transfer. Your lender will need proof of where the money came from.

Sources: Consumer Financial Protection Bureau, "Loan estimate explainer"; Consumer Financial Protection Bureau, "Closing disclosure explainer"

What is a down payment?

A down payment is the part of the home's price that you pay instead of borrowing. On a purchase, the loan amount plus your down payment should equal the sale price of the home.

The down payment is part of your Cash to Close, but it isn't a closing cost. The Total Closing Costs line on your Closing Disclosure leaves out the down payment.

Many states and local organizations offer programs to help first-time buyers with a down payment or closing costs. The CFPB points to HUD-approved housing counseling agencies as a way to find programs near you.

Sources: Consumer Financial Protection Bureau, "Loan estimate explainer"; Consumer Financial Protection Bureau, "Closing disclosure explainer"; Consumer Financial Protection Bureau, "Where can I find information on programs for first-time home buyers?"

What are closing costs?

Closing costs are the upfront costs you're charged to get your loan and transfer ownership of the property. They're also called settlement costs.

Common closing costs include appraisal fees, tax service provider fees, title insurance and government taxes. The Closing Disclosure also lists origination charges and any points. Origination charges are the lender's upfront charges for making the loan.

When you buy a home, you generally pay the closing costs. Depending on the contract or state law, the seller may pay some of them.

A credit toward closing costs isn't free. A seller who gives a credit will usually want a higher price for the home. A lender credit usually means a larger loan or a higher interest rate.

Sources: Consumer Financial Protection Bureau, "Closing disclosure explainer"; Consumer Financial Protection Bureau, "What fees or charges are paid when closing on a mortgage and who pays them?"

What are prepaid items and escrow?

Prepaid items are costs you pay ahead of time at closing. They can include property taxes, homeowners insurance and interest on your loan.

An escrow account is an account your lender sets up to pay certain property bills, such as property taxes and insurance. Part of each monthly mortgage payment goes into it. Your servicer then pays those bills for you.

If your loan has an escrow account, you make a deposit into it at closing. The Closing Disclosure calls this the Initial Escrow Payment at Closing. Many lenders require escrow for taxes and insurance, and sometimes the law requires it.

Sources: Consumer Financial Protection Bureau, "What fees or charges are paid when closing on a mortgage and who pays them?"; Consumer Financial Protection Bureau, "Closing disclosure explainer"; Consumer Financial Protection Bureau, "What is an escrow or impound account?"; Consumer Financial Protection Bureau, "I'm about to close on a real estate purchase transaction with a mortgage. What can I expect in the mortgage closing process?"

When do you find out how much cash you need?

You see an estimate on your Loan Estimate and the final amount on your Closing Disclosure. The lender must deliver or mail the Loan Estimate by the third business day after it receives your application.

The lender must make sure you receive the Closing Disclosure at least three business days before closing. That gives you time to compare your final terms and costs to your Loan Estimate and to ask questions.

Some costs can change between the two forms, and some can't. Some can go up by any amount, some can go up only by a limited amount, and some can't go up at all unless there's a change in circumstances. It's illegal for lenders to deliberately underestimate the costs on your Loan Estimate.

Some changes start a new wait. If the APR becomes inaccurate, the loan product changes or the lender adds a prepayment penalty, the lender must give you a corrected Closing Disclosure. You must receive it at least three business days before closing.

Sources: Consumer Financial Protection Bureau, "Loan estimate explainer"; Consumer Financial Protection Bureau, "Closing disclosure explainer"; Consumer Financial Protection Bureau, "§ 1026.19 Certain mortgage and variable-rate transactions."; Consumer Financial Protection Bureau, "Can my final mortgage costs increase from what was on my Loan Estimate?"; Consumer Financial Protection Bureau, "What is a Closing Disclosure?"