Cash to Close and Closing Costs are terms that often come up during the home buying process, and while they are related, they are not the same thing. Here’s a breakdown to help first-time homebuyers in their early 20s understand the difference:
1. Closing Costs:
- What It Is: Closing costs are the fees and expenses you need to pay when finalizing your mortgage and purchasing a home. These can include things like lender fees, appraisal fees, title insurance, attorney fees, and more.
- How It Works: These costs are usually a percentage of the loan amount, typically ranging from 2% to 5% of the home’s purchase price. They are separate from your down payment and are paid at the closing of the home sale.
2. Cash to Close:
- What It Is: Cash to close is the total amount of money you’ll need to bring to the closing table to complete your home purchase. This amount includes your down payment, plus the closing costs, minus any credits or deposits you’ve already made (like an earnest money deposit).
- How It Works: It’s essentially the final amount of cash you’ll need to have on hand (in your bank account or as a cashier’s check) when you go to sign the final paperwork and officially buy your home.
Key Difference:
Closing Costs are just one part of your Cash to Close. The Cash to Close is the overall sum you need to bring, which includes both the Closing Costs and your down payment, minus any prepayments or credits you’ve already made.