Total Cash to Close

Cash to Close

The Total Cash to Close represents the culmination of the home buying process, summarizing all the expenses you must cover to finalize the purchase of your new home. It is a critical figure that encapsulates the financial commitment required at closing, including your down payment, closing costs, prepaid items, and adjustments for any deposits or fees already paid. Understanding each component of this total will help you prepare for the financial aspects of closing on your home.

Components of Total Cash to Close

1. Down Payment: This is the portion of the home’s purchase price you pay upfront, not financed through the mortgage. The size of the down payment affects your loan amount and whether you need to pay for private mortgage insurance (PMI).

2. Closing Costs: These are the fees and expenses associated with finalizing the mortgage, including loan origination fees, appraisal fees, title searches, title insurance, and more. They vary based on your location, lender, and the specifics of your loan agreement.

3. Prepaid Items: Costs for homeowners insurance, property taxes, and possibly mortgage insurance that are paid in advance. Lenders often require several months of these payments to be made at closing to establish the escrow account.

4. Credits and Adjustments: This includes any earnest money deposits you’ve made upon signing the purchase agreement, seller credits (if agreed upon in the contract), and any other adjustments. These amounts are credited against the total cash to close.

How It’s Detailed in the Closing Disclosure

The Closing Disclosure is a five-page document that provides detailed information about your mortgage loan, including the loan terms, projected monthly payments, and how the Total Cash to Close is calculated. By law, your lender must provide you with this document at least three days before your scheduled closing date, giving you time to review the details and ask questions if anything is unclear.

Page 1 of the Closing Disclosure summarizes the transaction, including the purchase price, loan amount, and Total Cash to Close.

Page 2 details the closing costs, breaking them down into loan costs (origination charges, services you cannot shop for, and services you can shop for) and other costs (taxes, government fees, prepaids, initial escrow payments, and other).

Page 3 shows the calculations of the Total Cash to Close, outlining the costs from page 2 and including the down payment and any deposits, credits, or seller credits. It reconciles the total amount of money you need to bring to the closing table.

Preparing for Total Cash to Close

Budgeting: Early in the home buying process, start saving not just for your down payment but also for estimated closing costs and prepaid items. Use tools like loan estimators and speak with your lender to get a sense of what these might be.

Reviewing the Loan Estimate: Before you receive the Closing Disclosure, you’ll get a Loan Estimate from your lender when you apply for a mortgage, which also provides an estimated Total Cash to Close. Compare this with your Closing Disclosure to ensure there are no significant discrepancies.

Understanding and Verifying Details: Carefully review your Closing Disclosure as soon as you receive it. Verify all details, including how the Total Cash to Close was calculated. If you find discrepancies or have questions, immediately discuss them with your lender.

The Total Cash to Close is a pivotal figure in the home buying process, representing the culmination of your financial preparation for homeownership. By understanding its components and how it’s calculated, you can approach your closing day with confidence, knowing exactly what you need to complete your home purchase.

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