Cash to close is not down payment plus closing costs. It includes prepaids and escrow reserves, and it is reduced by credits and deposits already made.
The components
Down payment
Purchase price minus loan amount. The largest piece, and the only one most people budget for.
Loan costs
Origination, underwriting, points if any, appraisal, credit report, flood certification. Typically 0.5%–1.5% of the loan.
Title and settlement
Lender’s policy, owner’s policy if purchased, search, examination, settlement fee, courier and recording service charges. Varies enormously by state.
Government charges
Recording fees plus any transfer tax, deed stamps or mortgage recording tax. Negligible in some states, several thousand in others.
Prepaids
- Prepaid interest — from closing date to month end. Closing late in the month reduces this.
- First year homeowners insurance — usually paid in full at closing
Escrow reserves
Two to three months of taxes and insurance to seed the account. This is your money, held for you — but you still bring it.
What reduces it
- Earnest money already deposited — credited back
- Seller concessions — negotiated contributions toward your costs
- Lender credits — in exchange for a higher rate
- Tax prorations — in arrears states, the seller often credits you
- Down payment assistance where applicable
A worked example
$400,000 purchase, 10% down, closing mid-month:
| Down payment | $40,000 |
| Loan costs | $3,200 |
| Title and settlement | $2,600 |
| Recording and transfer | $1,800 |
| Prepaid interest (15 days) | $975 |
| First year insurance | $1,600 |
| Escrow reserves | $1,600 |
| Subtotal | $51,775 |
| Less earnest money | −$8,000 |
| Cash to close | $43,775 |
Note the gap: down payment was $40,000, but $43,775 has to arrive — and that is after an $8,000 deposit already made. Total out of pocket across the transaction is nearly $52,000 on a 10%-down purchase.
The cash-to-close calculator breaks this down for your own numbers.
Sourcing and seasoning
Lenders verify where the money came from. Funds sitting in your account 60+ days are “seasoned” and need no explanation. Recent large deposits require documentation.
Gift funds are generally acceptable with a gift letter stating no repayment is expected, plus evidence of the transfer. Cash deposits are the hardest to document — if you have been saving physical cash, deposit it well before applying.
Common questions
No — it is credited back to you at closing, reducing what you wire.
Generally yes from an eligible donor, with a gift letter and documentation of the transfer. Rules vary by programme.
General information, not advice on your specific situation. Guidelines, limits and pricing change, and vary by lender, programme and state. Nothing here is a commitment to lend or an offer of credit. For tax or legal questions, consult a qualified professional.
Sree Basireddy · Mortgage Loan Officer, NMLS 2705737 · Loan Factory, Inc., NMLS 320841 · Equal Housing Opportunity