Cash to Close vs Closing Costs: Everything you Need to Know

To calculate your cash to close, you’ll need to consider several factors, including the purchase price of the home, your mortgage loan amount, and your estimated closing costs.

Closing costs on a house are the fees associated with obtaining a mortgage loan and transferring ownership of the property, such as appraisal fees, title fees, and loan origination fees.

how much cash you need to close on your house successfully

Importance of Cash to Close in Home Buying Process

Cash to close is an important aspect of the home-buying process that should not be overlooked. Here are some of the reasons why cash to close is critical:

  1. Demonstrates your financial preparedness:
    • Cash to close is a measure of your financial readiness to buy a home.
    • It demonstrates that you have sufficient funds to cover the initial costs of purchasing a home, such as the down payment and closing costs.
  2. Determines the loan amount: 
    • Your available cash-to-close can have an effect on the loan amount you are approved for. 
    • The more cash you bring to the closing table, the less money you’ll need to borrow, which can increase your chances of getting a mortgage loan approved.
  3. Helps avoid surprises: 
    • Knowing your cash-to-close amount upfront can help you avoid any surprises as you move toward closing
    • You’ll have a better idea of what to expect and can plan accordingly, ensuring a smoother and less stressful experience.

Understanding Closing Costs vs Cash to Close

Difference between Closing Costs and Cash to Close

Closing costs and cash to close are often used interchangeably, but they are not the same thing. 

  • Closing costs are the fees and expenses associated with the real estate transaction. 
  • On the other hand, cash to close is the total amount of money a buyer needs to bring to the closing table, including the down payment and any other costs associated with the purchase.

A Practical Example in Illinois

Suppose a homebuyer is purchasing a home in Illinois for $300,000 with a conventional loan. 

The closing costs paid to third parties are approximately $5,000, and the lender may charge an origination fee of $1,500. 

The prepaid expenses such as property taxes and homeowners insurance premiums are approximately $3,000. In this scenario, the total closing costs would be around $9,500.

A Practical Example in Illinois

Using the same example as above, suppose the down payment is 20% of the purchase price, which is $60,000. The total closing costs are $9,500. Therefore, the estimated total cash to close would be $69,500.

Components of Cash to Close

There are several components of cash to close. Understanding each component can help you plan your finances better and avoid surprises on the closing day. 

Real estate agent handing over the key to the home buyer after closing

The following are the components of cash to close:

Down Payment

The down payment is the amount of money you pay upfront to purchase a home. It is usually a percentage of the home’s purchase price, and it varies depending on the type of loan you are getting. 

For example

  • If you are getting a conventional loan, you may need to pay a minimum down payment of 5% to 20% of the home’s purchase price. 
  • If you are getting a government-backed loan, such as an FHA or VA loan, the down payment requirements may be lower.

Closing Costs

Closing costs are fees charged by your mortgage lender, title company, and other third parties involved in the real estate transaction. 

These costs include 

  • Origination fees, 
  • Appraisal fees, 
  • Title insurance cost
  • Escrow or closing fees
  • Attorney fees, 
  • Homeowners association costs, and 
  • Other fees. 

Mortgage lenders charge closing costs to cover the expenses involved in the processing and underwriting your loan. The total closing costs vary depending on the loan amount, purchase price, and other factors. 

In Illinois, mortgage lenders are required to provide you with a loan estimate that details your estimated closing costs.


Prepaids are expenses that you need to pay upfront to cover certain costs that will come due after the closing. 

These expenses include 

  • Property taxes, 
  • Homeowners insurance premiums, and 
  • Upfront mortgage insurance premiums (if applicable)

The amount of prepaid expenses depends on the closing date and the interest rate of your home loan.

Lender Credits

Lender credits are funds that may be contributed by your mortgage lender to offset some of your closing costs. Lender credits can help reduce your out-of-pocket expenses on the closing day. 

However, note that lender credits may sometimes be a reflection of a higher interest rate.

Deposits and Credits

Deposits and credits are amounts that you have already paid toward your home purchase. These amounts include your earnest money deposit and any seller credits that you have negotiated. 

  • The earnest money deposit is a show of good faith that you are serious about buying the home. 
  • The seller credits are amounts that the seller agrees to pay towards your closing costs.
After calculating cash to close, final settlement is being made

Factors Affecting Cash to Close

Several factors affect the cash-to-close calculation, including the purchase price of the home, the interest rate on the home loan, and the closing date.

It’s important to note that the cash-to-close calculation can change after the loan estimate and closing disclosure have been issued. 

For example, if there are changes to the purchase price, the closing date, or other factors, the cash-to-close calculation may change.

Examples of Cash to Close Calculation

Let’s assume you are buying a home with a price of $300,000 and putting down a 10% down payment. 

Let’s also assume your closing costs are 4% of the home price, your prepaid expenses are $3,000, your lender credit is $1,500, and your earnest money deposit is $5,000. 

Using the formula from, your cash to close would be:

= (0.1 * $300,000 + 0.04 * $300,000 + $3,000) − ($1,500 + $5,000) 

= ($30,000 + $12,000 + $3000) – ($6500) 

= $38,500

Therefore, you would need $38,500 as your cash to close for this example.

Payment Methods for Cash to Close

online bank transfer is made between home buyer and seller

When it comes to paying your cash to close, there are several different payment methods that you can use. Here are some of the most common options:

Wire Transfer

A wire transfer is a secure electronic transfer of funds from your bank account to the title company or mortgage lender’s account. 

This is a quick and efficient way to transfer large amounts of money, but it may incur a fee from your bank.

Cashier’s / Certified Check

A cashier’s or certified check is a check that is drawn from the bank’s own funds and is guaranteed by the bank. This is a safe and secure way to pay your cash to close but may require a trip to the bank to obtain it.

Personal Check

You can also pay your cash to close with a personal check, but keep in mind that funds over $500 will need to be cleared before the transaction can be completed.  For this reason, many title and settlement companies will not accept a personal check in excess of this amount.

Credit or Debit Cards

Some lenders may accept credit or debit card payments for some items, like loan application fees or appraisal fees, but once you get to closing, credit cards will not be accepted by the title company.


In most cases, cash is not accepted as a payment method for cash to close in Illinois. Most title and escrow companies require you to pay your cash to close via cashier’s check or wire transfer. Because cash is more difficult to verify and track, it may raise suspicions of money laundering or fraud.

If you want to pay for your closing costs with cash, you must deposit it into your bank account well before the closing date and provide proof of the source of funds. 

Common Questions about Cash to Close

Wooden blocks written F A Q

Tips for Managing Cash to Close Funds

Mother and a son sitting together and discussing how to manage the funds for closing
  1. Determine Your Budget:
    • Before you start the home-buying process, it’s important to establish a budget. By doing this, you can determine how much money you have available for the cash to close funds. 
    • It’s also essential to consider all other costs related to home buying, such as closing costs, property taxes, and insurance.
  2. Track All Expenses:
    • Throughout the home-buying process, it’s essential to keep track of all expenses, including down payment, closing costs, moving expenses, and repairs. 
    • By doing this, you can monitor your spending and ensure you don’t exceed your budget before the closing date.
  3. Don’t Overlook Small Expenses:
    • While it’s easy to focus on the significant expenses involved in home buying, such as the down payment and closing costs, there are many small expenses to consider as well, such as appraisal fees, inspection fees, and title insurance. 
    • Make sure to factor in these expenses when calculating your cash to close funds.
  4. Negotiate with the Seller:
    • In some cases, it may be possible to negotiate with the seller to reduce your cash to close funds. 
    • For example, you could ask the seller to pay for some of the closing costs or to include certain appliances or fixtures in the sale.
  5. Plan for Unexpected Expenses:
    • It’s essential to have a contingency plan in place if something unexpected arises. 
    • This could involve setting aside some extra cash or having a backup financing option.
  6. Avoid Draining Your Savings:
    • While it’s important to have enough cash to close funds, it’s equally important not to drain your savings completely. 
    • It’s a good idea to keep some cushion in your savings account in case of emergencies.
  7. Seek Financial Advice:
    • If you’re unsure about how to manage your cash to close funds, consider seeking advice from a financial advisor. 
    • They can help you develop a budget and advise you on managing your funds best.

By following these tips, you can effectively manage your cash to close funds and ensure a smooth home-buying process.

Uri Adler