When you purchase a home, the "Cash to Close" represents the total amount of money you'll need to bring to the closing table to finalize the transaction. It's not just your down payment; it encompasses a variety of fees, deposits, and prepaid items. Understanding this figure is crucial for budgeting and ensuring you have sufficient funds available.
What's Included in Cash to Close?
The calculation typically involves summing up several key components:
Down Payment: The portion of the home's purchase price that you are paying upfront, which is not financed by the loan.
Loan Origination Fees: Fees charged by the lender for processing your loan application and funding.
Appraisal Fee: Cost to have a professional appraiser determine the market value of the home.
Title Insurance: Protects both the lender and the buyer against any claims or defects in the property's title. This usually includes both lender's and owner's policies.
Escrow Deposit (Impounds): Funds collected by the lender to pay future property taxes and homeowner's insurance premiums. Typically, you'll need to prepay a few months of these.
Prepaid Interest: Interest that accrues on your loan from the closing date until the end of the month.
Recording Fees: Charges by the local government to record the new deed and mortgage in public records.
Other Closing Costs: This can include various fees such as attorney fees, survey costs, pest inspection fees, credit report fees, and more.
Earnest Money Deposit: The initial deposit you made when your offer was accepted, demonstrating your seriousness as a buyer. This is credited towards your total cash needed.
How the Cash to Close is Calculated
The formula for calculating Cash to Close is generally:
Cash to Close = Down Payment + All Other Closing Costs + Prepaid Items – Earnest Money Deposit
Where:
Down Payment = Purchase Price – Loan Amount
All Other Closing Costs = Loan Origination Fees + Appraisal Fee + Title Insurance + Recording Fees + Other Closing Costs
Prepaid Items = Escrow Deposit + Prepaid Interest (for the period until the first payment)
The Earnest Money Deposit is subtracted because it has already been paid and counts towards the total funds needed.
Total Funds Needed Before Earnest Money = $70,000 (Down Payment) + $6,750 (Closing Costs) + $3,200 (Prepaid Items) = $79,950
Cash to Close = $79,950 – $15,000 (Earnest Money) = $64,950
In this example, the buyer would need to bring approximately $64,950 to closing. It's important to remember that this is an estimate, and your official Closing Disclosure will provide the exact figures.
Why is Cash to Close Important?
Having a clear understanding of your Cash to Close allows you to:
Budget Effectively: Avoid surprises and ensure you have the necessary funds well in advance of closing.
Secure Financing: Lenders will verify that you have the cash available.
Negotiate Terms: Knowing the components can sometimes open discussions with the seller or lender regarding certain fees.
Always review your Loan Estimate and Closing Disclosure documents carefully, as they detail all the costs associated with your home purchase.
function calculateCashToClose() {
var purchasePrice = parseFloat(document.getElementById("purchasePrice").value) || 0;
var loanAmount = parseFloat(document.getElementById("loanAmount").value) || 0;
var originationFees = parseFloat(document.getElementById("originationFees").value) || 0;
var appraisalFee = parseFloat(document.getElementById("appraisalFee").value) || 0;
var titleInsurance = parseFloat(document.getElementById("titleInsurance").value) || 0;
var escrowDeposit = parseFloat(document.getElementById("escrowDeposit").value) || 0;
var prepaidInterest = parseFloat(document.getElementById("prepaidInterest").value) || 0;
var recordingFees = parseFloat(document.getElementById("recordingFees").value) || 0;
var otherClosingCosts = parseFloat(document.getElementById("otherClosingCosts").value) || 0;
var earnestMoney = parseFloat(document.getElementById("earnestMoney").value) || 0;
var downPayment = purchasePrice – loanAmount;
var closingCosts = originationFees + appraisalFee + titleInsurance + recordingFees + otherClosingCosts;
var prepaidItems = escrowDeposit + prepaidInterest;
var totalCashNeeded = downPayment + closingCosts + prepaidItems;
var cashToClose = totalCashNeeded – earnestMoney;
// Ensure cashToClose is not negative, as earnest money is a credit
if (cashToClose < 0) {
cashToClose = 0;
}
var formattedCashToClose = cashToClose.toLocaleString('en-US', { style: 'currency', currency: 'USD' });
document.getElementById("result-value").textContent = formattedCashToClose;
}