Showing you the money: how cash to close is calculated

“How much cash will I need at closing?” is one of the first questions every buyer asks, and one of the most confusing to answer. The number on your Loan Estimate, called “Estimated Cash to Close,” combines your down payment, your costs and your credits. Once you see how the pieces fit together, the calculation is simple.

The basic equation

There are two ways to express the same calculation. Both give the same result.

Way 1: purchase price + closing costs + prepaids − credits − loan amount = cash to close

Way 2: down payment + closing costs + prepaids − credits = cash to close

They match because your down payment is simply the purchase price minus the loan amount.

What goes into each piece

Down payment

The down payment is the part of the price you do not borrow. It depends on the loan: as little as 0% for VA and USDA, 3% for some conventional loans and 3.5% for FHA. See how much you need to put down.

Closing costs

These are the costs to make the loan and transfer the home. They fall into a few groups:

• Lender charges: origination or underwriting fees.
• Third-party services: appraisal, credit report, flood certification, and on rural homes sometimes a well test or septic inspection.
• Title and settlement: title insurance, the closing agent’s fee and recording fees.
• Government fees: recording fees and Colorado’s documentary fee, one cent per $100 of the price. A few mountain towns, including Telluride, add their own transfer tax.

The CFPB suggests comparing the total of these across Loan Estimates rather than any one line, since lenders itemize them differently. Inspections you order yourself, such as a home inspection, are paid outside closing and are the only costs not counted in your cash to close.

Discount points (optional)

Discount points are an offer to pay money upfront in exchange for a permanently lowered interest rate. They are optional. Whether they pay off depends on how long you keep the loan. See points for how to judge the break-even.

Prepaids and escrow

Prepaids are not fees for the loan. They are amounts for costs you would pay anyway, collected up front:

• Daily interest from your closing date to the end of that month. (Your first full payment is usually due the first of the month after next.)
• The first year of homeowners insurance.
• An escrow cushion: a few months of property taxes and insurance placed in your escrow account, so the servicer has enough on hand when those bills come due.

Prepaids change with your closing date and your local tax and insurance bills, so they are one of the harder pieces to estimate early.

Credits

Credits reduce the amount you bring to closing:

• Earnest money you already deposited when you signed the contract.
• Seller concessions: money the seller agrees to pay toward your costs. Each loan type caps these (for example, up to 6% on USDA).
• Lender credits: money from the lender toward your costs, usually in exchange for a higher rate.
• Anything you already paid, such as an appraisal paid before closing.

A worked example

The example below uses round numbers. The figures are hypothetical and are not a quote, and real costs vary by loan, lender and county.

Calculated the other way, the result is the same: $300,000 + $3,500 + $3,000 − $7,000 − $285,000 = $14,500.

Two points stand out. First, the earnest money is not an extra cost. It counts toward your cash to close, paid earlier. Your total out of pocket is $14,500 at closing plus the $3,000 earnest money you already deposited, $17,500 in all. Second, the seller concession reduced what you bring by $4,000 without changing the price.

Where the number can move

Cash to close on your first Loan Estimate is an estimate. It can change if:

• Your closing date moves, which changes daily interest.
• Your tax or insurance bills come in higher or lower than estimated.
• You change the loan, such as adding points or changing the down payment.
• The contract changes, such as a new seller credit after inspection.

At least three business days before closing, the lender sends your Closing Disclosure with the final number. We go through it with you and explain anything that changed from your Loan Estimate.

How to pay it

Cash to close is usually paid by wire or cashier’s check rather than a personal check. We will need to show the lender where the money came from, so keep large deposits documented. To confirm wiring instructions, call the title company at a number you know is right, from us, your agent or the title company’s own website, never one from an email or text. Any email that changes wiring instructions is a warning sign.

Seeing it side by side

Cash to close looks different on every option. Option 1 might have more down and no points; Option 2 might have less down and a seller credit. A Mortgage Plan shows each option’s cash to close line by line, so you can see where every dollar goes. For more, see cash to close and our process.

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Sources: CFPB Loan Estimate explainer. CFPB Closing Disclosure explainer. USDA guaranteed loan program.