Cash to close vs closing costs
Closing costs are the charges to get the loan and transfer the house. Cash to close is the amount you still have to bring, after the down payment is added and the credits and deposits you already paid are subtracted.
The Loan Estimate puts both numbers on the first page, in the same box, and people quote whichever one they saw last. They answer different questions. Closing costs are what the transaction charges. Cash to close is what is still due from you at the table. The Consumer Financial Protection Bureau’s guide to the Loan Estimate says estimated cash to close is the amount you have to pay at closing in addition to any money you have already paid, usually by cashier’s check or wire. Regulation Z, 12 C.F.R. § 1026.37(h), is the rule for how that amount is built. The cash to close calculator does a worksheet version of the arithmetic. It is not the form.
Closing costs are a stack of charges
The CFPB groups the upfront charges into kinds. Origination and other lender charges are the price of making the loan: application, underwriting, processing, and similar lines. A point is one percent of the loan amount, paid at closing, usually in exchange for a lower note rate. Third-party charges pay for services the loan needs, such as an appraisal and title insurance. Some of those services you can shop for, and some you cannot. Government fees are recording charges and transfer taxes. They generally do not change because you picked a different lender.
Prepaids and the first escrow deposit sit in “other costs,” not in the lender’s origination block, and they are easy to mix into the fee total. Prepaid interest covers the days from closing through the end of that month, before the first regular payment. The first year of homeowners insurance is often collected at closing. The escrow deposit is several months of tax and insurance, held so the lender can pay those bills later. The CFPB treats taxes and insurance as costs of owning the home, not as a cost of borrowing, and says a lender’s estimate of them is a poor reason to pick one lender over another. They still have to be funded at closing, so they still change the cash.
On the form, total closing costs are the loan costs plus the other costs, minus lender credits. That total is one line in the cash-to-close math. It is not, by itself, the check you bring.
Cash to close adds the down payment and subtracts what is already handled
For a purchase, the Calculating Cash to Close table adds seven amounts. Total closing costs go in as a positive number. Closing costs financed, the part of those costs paid from the loan amount, go in as a negative number, and only up to the closing-cost total. The down payment, or other funds from the borrower, is the purchase price minus the principal amount of the loan, and it is zero when the loan is larger than the price. The deposit, which includes earnest money held under the contract, is a negative number on a purchase. Funds for the borrower are zero on a purchase. Seller credits are a negative number, limited to items in the cost tables. Adjustments and other credits cover amounts someone else is paying, such as a gift or a builder credit applied to those costs, and they are reduced by charges the contract says you still pay at closing, such as a tax proration. Estimated cash to close is the sum of those seven lines.
Read that list against the closing-cost total and the difference is structural. The down payment is cash to close and is not a closing cost. Earnest money you already wrote a check for is still part of the transaction, but it is not due again, so it reduces cash to close. A seller credit can pay charges without reducing the price. A lender credit reduces what you pay at closing and, as the CFPB explains on points and credits, usually comes with a higher note rate. Financing the costs rolls them into the loan, which lowers the cash and raises the amount you repay.
A refinance often has no seller and uses the alternative table: loan amount, total closing costs, and the payoffs, with a checkbox for whether cash is due from you or paid to you. Paying off the old loan is the large line. Cash to close on a refinance can be a small amount you bring, or cash you receive, even when closing costs are several thousand dollars. The purchase table and the refinance table are not interchangeable.
Worked example
These figures are typed into the cash-to-close calculator. They are not copied from a Loan Estimate. Price $360,000, down payment $36,000, note rate 6.5 percent, lender fees $1,490, no points, third-party services $2,800, recording and transfer charges $650. Insurance $1,500 for the year collected at closing, property tax $3,960 a year, 12 days of prepaid interest, 2 months of tax and insurance in escrow, a seller credit of $3,000, no lender credit, and $4,000 already paid as earnest money. The calculator counts prepaid interest on a 365-day year.
- Loan amount: $360,000 − $36,000 = $324,000. Points on this run cost $0.00.
- Closing costs, meaning lender fees, points, third-party services, and government fees, are $4,940.00.
- Prepaid interest for 12 days is $692.38. Prepaids, including that interest and the year’s insurance, are $2,192.38. The escrow deposit is $910.00.
- Add those and the charges beyond the down payment are $8,042.38. Subtract the $3,000 seller credit that can be used, and subtract the $4,000 earnest money. Then add the down payment back. Cash to close is $37,042.38.
The closing-cost line and the cash-to-close line are $32,102.38 apart. Quoting the smaller one as “what closing costs” understates the check. Quoting cash to close as “the fees” mixes the down payment and the deposit into the fee stack. The form keeps them in separate rows for that reason.
Move one assumption and both numbers move differently. Drop the earnest money to zero and cash to close rises by the $4,000 that is no longer credited, while closing costs stay the same. Finance the lender fees instead of paying them in cash and the cash falls, while the loan balance rises and so does the interest you pay later. A seller credit larger than the costs does not become a check back to you in this calculator: credits stop at the cost total, and the rest is unused. The form’s own rules for credits are in the regulation, not in a rounded worksheet.
What the worksheet does not settle
The Loan Estimate is an estimate. The Closing Disclosure, delivered before you sign, is the later form with the figures that will be collected. Some charges cannot rise, some can rise only within a tolerance, and some can change. The CFPB’s comparison of the two forms is the place those categories are explained. A calculator that accepts a typed fee cannot know which tolerance a line falls into.
Owner’s title insurance, a home inspection, and a real-estate commission can be part of buying and still sit outside the lender’s required charges. The CFPB lists them as homebuying expenses that are not required to get the mortgage. If you are paying them, they still need a source of cash. If the contract says the seller pays them, they belong on the form as a credit or as a charge that is not yours, and the cash-to-close table is where that lands.
Two lenders can show different cash-to-close totals because one of them estimated a different tax or a different insurance premium. The CFPB says not to choose a lender on that difference, because the lender does not set the tax bill. Compare the origination charges, the services the lender requires, and the lender credits. Then use the cash-to-close line to see whether the money you have covers the down payment and the rest. The loan comparison calculator is for the cost of two loans over time. It does not replace the cash-to-close line, and this worksheet does not replace the five-year comparison on page 3 of the form.