Buying a home is exciting, but there are many costs associated with the homebuying process that some first-time buyers may not fully understand. One such expense is the cash needed to close on your new home. Calculating your cash to close is an important step to take so you don’t suffer sticker shock when it comes time to seal the deal on your new property. At Matheson Law Firm, our team has helped countless clients understand the closing process, allowing them to fully prepare for all associated costs well before it’s time to officially close.
What Is Cash to Close?
During the homebuying process, you’ll hear plenty of terms thrown around, including “cash to close” and “closing costs.” It’s important to note that these two things are not the same. The main differences between closing costs and cash to close are as follows:
- Closing Costs: Closing costs are the fees paid to your mortgage company in order to close on your loan.
- Cash to Close: The total sum of funds needed to bring to your closing to complete the real estate transaction.
Your cash to close includes all of the total closing costs less any fees that are rolled into the total loan amount. Cash to close also includes the down payment, any seller credits, and any refunds for overpayments and other credits.
How to Calculate Cash to Close
Three days prior to your closing date, you will receive a Closing Disclosure document detailing all of the cash needed to close on your property. However, waiting three days prior to learn how much you owe isn’t always the best route to take. Instead, homebuyers can calculate their cash to close by using their Loan Estimate. Within your Loan Estimate document, you will find the cost estimation which indicates the total amount owed at closing both in dollars and as a percentage of the mortgage’s value.
Usually, homebuyers can expect to pay between 2% and 5% of the total loan amount when it comes time to close. This percentage includes the cost of the down payment. While only an estimation, these numbers are generally accurate enough to use so that you can plan accordingly for the closing process. If you’re still unsure about what the total cash to close will be for your real estate transaction, consult with your real estate attorney to learn more.
How to Pay Your Cash to Close
There are a number of methods to use when paying your cash to close. When preparing to pay, you may elect one of the following options:
- Cashier’s Check
- Certified Check
- Wire Transfer
- Cash
- Credit/Debit Card
- Personal Check
While credit and debit cards, and personal checks might be accepted by some, it’s not recommended that you use these options to satisfy the balance on your cash to close. These methods of payment are much less secure than cashier’s checks, certified checks, and wire transfers. Always consult with your real estate attorney before submitting payment to ensure you are selecting the most secure method of payment.
How Matheson Law Can Help with Cash to Close
At Matheson Law Firm, our team has years of experience serving the unique needs of Charlotte-area homebuyers and sellers. Our team has helped countless clients through the closing process, helping them prepare for their cash to close using the most accurate estimations possible. If you’re preparing to close on a property in Charlotte, N.C. and require assistance through the closing process, don’t hesitate to contact our team to schedule a consultation with our real estate attorneys today!
FAQs
Cash to close includes the total closing costs minus any fees that are rolled into the loan amount. It also includes your down payment and subtracts the earnest money deposit you might have made when your offer was accepted, plus any seller credits.
How does the buyer know how much money to bring to closing? ›
Prior to closing, the lender provides the buyer with a closing disclosure document listing their final loan costs, real estate fees, and cash required to close. This helps the buyer know exactly how much cash they need to bring to closing to complete the real estate transaction.
How much cash do you need to close? ›
Closing Costs
Along with the down payment, you must have additional cash ready for closing day. Closing costs can be another 2-5% of the sale price of the home. This would range between $4,000 and $10,000 for a $200,000 home, on top of the down payment.
What is the rule of thumb for calculating closing costs? ›
What are typical closing costs? According to Zillow.com, home buyers should expect to pay between 2 – 5% of the purchase price of their home in closing costs. So, if your home costs $150,000, you could pay anywhere between $3,000 and $7,500 in closing costs.
Is estimated cash to close accurate? ›
Usually, homebuyers can expect to pay between 2% and 5% of the total loan amount when it comes time to close. This percentage includes the cost of the down payment. While only an estimation, these numbers are generally accurate enough to use so that you can plan accordingly for the closing process.
How do you calculate cash on cash in real estate? ›
How Is Cash-on-Cash Return Calculated? Cash-on-cash returns are calculated using an investment property's pre-tax cash inflows received by the investor and the pre-tax outflows paid by the investor. Essentially, it divides the net cash flow by the total cash invested.
What happens if the buyer doesn't have enough money at closing? ›
The sale won't close until everything is funded. If you don't have enough funds to Close then it won't close. You'll lose any earnest funds you might have put up. It will also depend on the terms of the contract as to what might happen next.
Can I put closing costs on a credit card? ›
The closing cost you put on your credit card may not exceed 2% of the loan amount. For example, if your loan amount is $350,000, you could charge up to $7,000. You must have enough money in your bank account to cover the charges.
Can cash to close change after closing disclosure? ›
Once you receive the final closing disclosure, the cash to close amount generally should not change. However, in certain cases, such as certain additional closing costs or credits, errors in disclosed information, there may be exceptions.
What is the 3000 cash rule? ›
Funds Transfer and Travel Rule Requirements
Treasury regulation 31 CFR Section 103.33 prescribes information that must be obtained for funds transfers in the amount of $3,000 or more.
Who must file. Federal law requires a person to report cash transactions of more than $10,000 by filing Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.
How to transfer money for house purchase? ›
Tips for Transferring Money to Your Solicitor
- Make sure that you've provided your solicitor with the correct account number and account information. - Make sure that the transaction is processed through ACH. Your bank or the company that is transferring the funds will be able to help you with this.
How much house can I afford with $10,000 down? ›
If you have a conventional loan, $800 in monthly debt obligations and a $10,000 down payment, you can afford a home that's around $250,000 in today's interest rate environment.
What is the mortgage cost rule? ›
According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts. Housing costs can include: Your monthly mortgage payment. Homeowners Insurance.
What percentage should you save for closing costs? ›
Closing costs typically range from 2 to 5 percent of the total loan amount, and they include fees for the appraisal, title insurance and origination and underwriting of the loan. You may be able to negotiate your closing costs depending on seller concessions.
How does the buyer know how much money to bring to closing Quizlet? ›
The broker finds out from the lender and tells the buyer how much to bring. The escrow agent will subtract the total of the buyer's credits from the total debits and the result is what the buyer needs to bring.
Why do buyers ask for money back at closing? ›
The cash back to you helps offset closing costs or gives you extra money in your pocket. But it's important to discuss these specifics with your lender to understand where the cash to close to buyer amount comes from.
Can I wire funds the day of closing? ›
Can I wire funds the day of closing? It's not recommended to wire money on closing day. Although wires can go through within hours, there's no guarantee the funds will be available on time. That could lead to delays, and possibly not getting the keys to your new home in hand.
Can you change the down payment amount before closing? ›
You can, however it is not typically advised. Be aware that changing your down payment amount can result in delays in the process. Your loan will likely need to be rewritten to accommodate for the change – and, if the amount is less than initially planned, you could be at risk of losing your loan approval.
