What is the Difference Between Closing Costs and Cash to Close?
Located on the first page of your Closing Disclosure, you will find two lines at the end that can easily be confused. One of these sections is labeled “Closing Costs” and the other is labeled “Cash to Close.” These terms are more than simply semantics. They actually are two distinct components that comprise the costs you will pay at closing.
Your Closing Disclosure is a legally required document provided by your mortgage lender. This document outlines crucial details of your mortgage. Included in these details are how much you need to pay in closing costs, how much you have paid already, and how these compare to your loan estimate.
The Skinny About Closing Costs
Closing costs refer specifically to the fees paid to your mortgage company to close on your loan. These costs will vary and depend upon your loan type, state, down payment and the size of the loan. Some fees are much more common than others.
Here are a few of the more common fees that you might pay:
- Application Fee
Lenders will charge an application fee to process your mortgage. This cost generally represents the initial administrative charge of processing your application.
- Attorneys Fee or Settlement Fee
A real estate attorney will help finalize your title transfer. If you use an escrow agent, then you will be charged a settlement fee.
- Recording Fee
A recording fee is the cost incurred in transferring property from the seller to the buyer. This rate is determined by the county of register. In Oakland County and Macomb County, the recording fee starts at $30.00. In Wayne County, the cost is $15.00 for the first page and $3.00 for each page thereafter.
- Title Search / Title Insurance
Opting for Title insurance provides protection against third party claims on your new home’s title. A title search checks for past bankruptcies, liens or other factors that might bring into question the status of your new property. Insurance is paid at closing and offers protection for as long as you own the property.
- Appraisal Fee
An appraisal is an estimate of the value of your home performed by a professional third-party. Lenders use an appraisal to determine if they are lending more money than the home is actually worth.
- Origination Charge
This is a charge that covers the cost of underwriting the loan.
- Private Mortgage Insurance
If you purchase a home with less than 20% down with a conventional mortgage, your lender will require you to purchase private mortgage insurance (PMI). This insurance protects the lender if the mortgagee defaults on the loan. The first month’s PMI is paid at closing.
While this is certainly far from an exhaustive listing of closing costs, this will provide you with an idea of the general composition of the costs. These costs are necessary to close your loan and come from the array of providers necessary to make your mortgage work.
Cash to Close
Cash to close represents the total amount of money that you will need to close on your new home, so it’s not limited to just your closing costs.
It includes your total closing costs minus any of those which will be financed or rolled into the overall loan amount. Additionally, the calculation includes your down payment and subtracts the earnest money that you already submitted with your original contract. Any seller credits, refunds for overpayments, or any other credits will also be present here.
So the sum of your closings costs and down payment minus earnest money, credits or refunds equals your cash to close. As you can see, closing costs will often represent a significant portion of cash to close, although there are additional amounts that go into calculating the cash to close.
All of these costs are detailed on your Closing Disclosure under their own headings. Your closing costs are listed in on heading just above the cash to close amount. While the former is constituted by the array of fees you will see associated with a mortgage, the latter is a specific formula of closing costs, down payment, earnest money, and any credits or refunds.
If you have further questions about closing costs or cash to close, one of the trusted experts at Range Lending can answer any questions that you may have in terms you can understand.