Cash to Close vs. Closing Costs: What’s the Difference?

Buying a home is one of the biggest purchases you’re likely to make in your lifetime. It’s also complicated, requiring paperwork, disclosures, and inspections.

When closing day arrives, it’s important to have everything ready to go — including the cash you need to complete the deal, which is referred to as cash to close. This is different from your closing costs, which are various fees you need to pay when buying a home.

Let’s look at cash to close vs. closing costs in more detail.

Overview of cash to close vs. closing costs

	Cash to close	Closing costs
Definition	Cash to close is the total amount of cash you need on the closing date to complete the deal.	Closing costs are the fees you pay to get a home loan.
What it includes	Closing costs, down payment, earnest money, lender credits, and seller credits.	Origination fees, title insurance, title search fees, appraisal fees, attorney fees, PMI, discount points, and taxes.
Costs	Varies depending on your down payment, closing costs, and other factors.	3% to 6% of your home’s purchase price.

Cash to close is the total amount of cash you need to bring with you when you finalize your home purchase. Beyond understanding how to get a loan to buy a home, you should know exactly how much money you need to bring to closing to avoid roadblocks or delays.

Closing costs are part of your total cash to close, representing the fees you pay to actually get the loan. So, closing costs are included in your cash to close, but your closing costs don’t represent everything you need to bring to the table.

Cash to close

Cash to close is the total amount of cash you need to present on the closing date to complete the deal. When you come to closing, the following items will determine this amount.

Closing costs

These are the fees you pay as part of getting a mortgage. Your total closing costs will include title insurance, private mortgage insurance (PMI), certain taxes, origination fees, appraisal fees, and more.

Closing costs are typically 2% to 6% of your home’s purchase price. If your closing costs are 3% for a $300,000 home, you need to bring $9,000 to closing.

Down payment

This is the amount of your own money you’re putting into the home, expressed as a percentage of the purchase price. It reduces what you borrow to buy the home.

For example, if you buy a home with a price of $300,000 and you have a 5% down payment, you need to bring in $15,000 for the down payment. That’s one portion of your total cash to close. Your down payment for a conventional loan could be as little as 3% or as much as 20%.

There are also government programs, such as Veterans Affairs (VA) loans and U.S. Department of Agriculture loans, that allow borrowers to get a mortgage with no money down if they qualify.

Mortgage points

It goes without saying: The lower your mortgage rate, the less you’ll pay to buy a home. But if you don’t have the credit or down payment to qualify for a lower APR, you can spend more money upfront to reduce your interest rate by purchasing mortgage points.

When you buy a point, you agree to pay 1% of the home's purchase price to reduce the mortgage rate by 0.25%. For instance, if you have a 5% mortgage rate and you want it to be 4.5%, you could buy two mortgage points for $6,000 on a $300,000 loan. That money gets added to your cash to close.

Earnest money

One way to decrease your cash to close is with your earnest money deposit.

When you make an offer on a home, you might offer earnest money to “sweeten the deal.” This is cash you put up to show you’re serious about completing the purchase. If you back out, you typically lose your earnest money. In the meantime, the cash is kept in a separate escrow account.

On closing day, earnest money is deducted from your cash to close. If you provided $10,000 in earnest money, and your cash to close is $30,000, you only need to bring $20,000 to closing.

Lender credits

This is the other side of mortgage points. If you want to reduce how much cash you need to come up with in order to close, you can agree to a higher interest rate. You’ll pay more in interest over time, but you don’t need to bring as much to the table upfront. (In this case, you can try refinancing for a better rate later.)

Seller credits

Sellers may offer to pay some of your closing costs, the cost of repairs, or other expenses for you as you negotiate a deal. You’ll have more bargaining power if you’re paying at or over asking price, offering all cash, or otherwise making the sellers’ lives easier.

Closing costs

Although closing costs are part of your cash to close, they don’t include the total amount of cash you need to bring with you to the table. Instead, closing costs represent the money you pay to get a loan.

Origination fees

Lenders go through a lot of paperwork when you get a loan. Often, you cover some ‌costs related to processing a mortgage application, and these are called origination fees.

Origination fees can range from 0.5% to 1% of a mortgage loan. Some lenders waive or do not charge these.

Title insurance and title search

Your title is proof of ownership of the home. Title records indicate who has a claim on a property and trace the ownership of a house. However, sometimes there’s another claim on a property, known as a lien. Title insurance is designed to protect against these third-party claims.

A title search can cost between $75 and $200, and title insurance can range from $500 to $3,500. Most lenders require you to pay for title insurance.

Appraisal fees

When buying a home, a lender wants assurance that your home is really worth the amount it’s about to lend you. An appraisal involves a third party reviewing a home to determine its value, and appraisal fees cover the cost of this assessment.

Appraisal fees can range from $300 to $500 or more, but this varies depending on the same. Some lenders may approve appraisal waivers to qualified buyers but are not required to.

Attorney fees

A title transfer from someone else’s name to yours might require an attorney, in some states. As a result, you might need to pay real estate attorney fees as part of your closing costs to complete the home purchase transaction.

Attorney fees depend on the complexity of a home sale. You could be billed hourly from $150 to $300 per hour or charged a flat fee from $500 to $1,500.

Private mortgage insurance (PMI)

When you have a down payment of less than 20%, many lenders require you to get PMI. This insurance is designed to protect the lender because it covers the value of the house if you default. You might need to provide your first PMI payment as part of your closing.

PMI fees can range from 0.2% to 2% of the original loan amount. You can waive this fee by raising your down payment to 20% or more of the purchase price.

Government loan fees

Finally, some government-backed loans come with their own fees. If you’re eligible for a VA loan, you won’t have to worry about PMI, but there’s a VA funding fee based on your down payment and other factors. With an FHA loan, there’s a mortgage insurance cost.

VA funding fees can range from 1.25% to 2.15% of the loan amount. For FHA loans, mortgage insurance costs 0.15% to 0.75% of the loan amount annually, with an upfront payment of 1.75%.

Taxes

In some cases, there might be a tax associated with your purchase, or you might need to prepay a portion of your property taxes. This is included in your closing costs.

Other prepaid expenses

Before your first mortgage payment is due, or if you get homeowners insurance ahead of time, you might owe some money in prepaid expenses to cover costs until you make your first payment. This could include homeowners insurance premiums and interest costs.

How to determine your cash to close amount

If you’re trying to figure out how much cash to close you need for your home purchase, you can look at your loan disclosure and closing disclosure.

When getting your loan estimate paperwork, there’s a section toward the bottom of the loan estimate disclosure called “Costs at Closing.” There, you’ll see your “Estimated Closing Costs” and your “Estimated Cash to Close.”

However, the loan estimate isn’t your final amount. You’ll have a final amount provided to you ahead of the closing in the final closing disclosure and loan disclosure. There’s a lot of paperwork, so look through the documents carefully. Ask questions, and consider having a professional you trust to review the documents.

How to pay

Paying for a house involves a large amount of money, so there are specific measures in place to transfer the money safely and securely.

How to pay your cash to close

Once you know how much cash you need to close, you can figure out how to pay it. In many cases, you won’t be allowed to bring actual cash to the closing. Because you likely need thousands of dollars to complete the transaction, bringing cash or a personal check wouldn’t be all that safe.

Instead, many of these transactions require a certified check, cashier’s check, or a wire transfer.

How to pay your closing costs

Your closing costs are due on the day of closing, and there’s more flexibility in how you pay these. If you’re unsure which payment method is right for you, check with your closing agent, as they can tell you which method is preferred for your situation.

The most common method is to bring a cashier’s check or use a wire transfer, but here are other options to consider:

• Rolling your closing costs into your mortgage
• Asking the seller to cover part or all of the closing costs
• Having family contribute as a gift fund
• Applying for assistance programs

Your eligibility for these options depends on what type of loan you are using, so be sure to ask your lender if you qualify.

FAQs

Bottom line

Your closing costs aren’t the same as your total cash to close on a real estate transaction. Although closing costs are part of your cash to close, they aren’t the full picture.

Your cash to close is the total money you need to settle the transaction and includes your down payment and other items on top of the closing costs. Before you decide to buy a home, learn more about the steps to buying a new home.