Buying a home can be such a stressful process because there are so many different things that you have to manage. From managing the financial side, to signing contracts, there are lots of different things that you need to manage at the same time.
This can make it easy to forget things if you are not organized. One thing that you might overlook when you come near to closing is your ‘cash to close’.
Cash to close covers a lot, and it includes the total closing costs for the home, with the fees of the loan amount subtracted. In most cases, your ‘cash to close’ figure will be a positive number, and this will tell you how much money you have left to pay before you can close.
But, in the hurry of sorting everything to close on your home, you might not have realized that your cash to close is actually a negative figure.
In this guide, we’ll be taking a look at what cash to close is, and what it means if your cash to close figure is negative. So, to find out more, keep on reading.
What Is ‘Cash To Close’?
When you are buying a home, then ‘cash to close’ is probably a term that you have heard mentioned a couple of times. This term refers to the funds that a home-buyer needs to pay in order to finalize the purchase of their new home.
In essence, this sounds simple, but ‘cash to close’ is actually quite a complex thing to figure out. This is because a lot of different things are taken into account when it comes to ‘cash to close’.
Within the ‘cash to close’ figure, a number of things will be taken into account. These include the down payment of the home. But will also include a number of fees in relation to legal counsel, escrow, insurance, and appraisal. Due to this, calculating the final ‘cash to close’ figure isn’t all that easy.
It is difficult to monitor the ‘cash to close’ figure because it is also impacted by any refunds for overpayments throughout the process, and will also be affected by things such as seller’s credits.
While it is hard to calculate this figure, your solicitor or mortgage advisor will be able to monitor this for you. It is important that the figure they calculate is correct, otherwise you will be unable to close on your house.
What Is The Difference Between ‘Cash To Close’ And ‘Closing Costs’?
Something that you might get confused about when buying a home is ‘cash to close’ and ‘closing costs’. These two figures are very similar, but they are not the same as one another.
So, to ensure that there is absolutely no confusion between these two terms, as confusion could hold up your ability to close, let’s take a look at the difference between ‘cash to close’ and ‘closing costs’.
As we have said, these two terms are very similar to one another. But they do not mean the same thing. They are similar because closing costs are included within your ‘cash to close’ figure, but these two figures will not be the same as one another.
Let’s take a look at what is included in your closing costs.
In your closing costs, there will be a number of fees included, such as:
– Attorney Fees
– Appraisal Fees
– Application Fees
– Title Insurance
– Origination Charges
– Private Mortgage Insurance
– VA, USDA, or FHA fees (if it is a government backed loan)
– And pest inspection fees
All of these figures combined will form the closing costs of your house. But, they will not be the ‘cash to close’ figure that you need to pay in order to close.
This is because, as we said earlier, the cash to close figure is the total closing costs minus the cost of fees that are rolled into the loan amount.
So, your ‘cash to close’ figure will be the total amount of the closing costs that we listed above, minus some other figures.
These figures include:
– Down Payment (the percentage of your home’s purchase price that you pay upfront)
– Credit (any closing costs that you have already paid in the process of buying your home.
What If Cash To Close Is Negative?
So, now that we have covered everything that you need to know about cash to close, let’s take a look at the answer to the question that you are asking.
In simple terms, if your cash to close balance is a negative figure, you do not have any cash to close to pay. This means that you do not need to pay a final figure in order to close on your home, and you could even be owed money.
Cash to close is a very common term, and you might be struggling to comprehend how it could be a negative value. It isn’t common for a cash to close value to be in the negatives, so if your balance is, this is because you have got an excellent deal on your home purchase.
When you apply for financing for your home, you usually have to pay out quite a lot of your own money on top. But, if your cash to close is a negative ratio, this is because you have qualified for more financing than you actually needed.
It is very rare for a cash to close figure to show as a negative, this is because most lenders will adjust the loan amount down to the exact figure that you need, rather than leave a negative figure.
However, if the bank does not adjust the figure, the money will become yours. But, this is not a cash figure, instead you will only get access to this money when you sell your home.
If your cash to close figure is negative, this means that you do not have a balance to pay off in order to close. This is usually because the lender has qualified you for more money than you actually need.
Most banks will adjust the figure down to the exact amount that you need. But if they do not, this negative figure will become tied up in your home, and will become available to you if you sell your home in the future.