4 Cash Payments You Need To Bring When Closing On a Home

Purchasing a home might seem like you’re signing your life away, but it also comes with a hefty price tag beyond forking over the remainder of your down payment.

When it comes time for closing, you will need to come prepared with payments to fulfill the checklist of money owed.

“’Closing costs’ is a broad term encompassing fees paid to your lender, third parties that had a role in the transaction such as an appraiser and title company, any required government or property taxes, and prepaid items like property insurance and mortgage interest,” Greg McBride, chief financial analyst at Bankrate, told Realtor.com®. “The total is often a few, or even several, thousand dollars but varies based on location and property specifics.”

Your real estate agent will help walk you through what you need to avoid any snags at closing.

A cash payment does not mean you need to come with cold, hard cash, but McBride said a cashier’s check or wire transfer are the preferable forms of payment. Personal checks and credit cards are usually not accepted at closing.

There are four main cash payments to have on hand.

1. Closing costs

Buyers and sellers pay some kind of closing costs. For buyers, this might include fees related to mortgage financing, credit checks, title services, home inspection, and appraisals.

Some of these costs may have already been paid, but the buyer is responsible for any balances on closing day.

2. Down payment

Buyers may have put an initial deposit or earnest money when signing the purchase agreement. That money is held in escrow, which is put toward your full down payment.

The remainder of the down payment will be paid at closing.

3. Mortgage interest

Per diem interest is the amount of interest a buyer owes from between the day you close and the day you begin making payments on your mortgage—this is usually on the first of the following month.

So for example, if your closing is Oct. 13, you’ll pay prorated interest for the number of days before the first monthly payment of Nov. 1.

4. Prepaid charges

Any prepayment will cover a portion of your homeowners insurance, property taxes, or HOA dues, if it pertains to your purchase.

This is usually held in escrow by your lender and distributed as needed.

How much you’ll need

The amount of money you need to pay for the above payments will vary.

When you submit a mortgage application, the lender will give you a loan estimate within three business days, McBride explained.

“While this will outline all the various charges, most figures are just estimates and only the fees the lender is charging are accurate,” said McBride. “Other third-party fees can be more but also less, so shop around.”

There are government charges for your area. You can find this online. Also, prepaid items like mortgage interest will depend on your specific closing date.

All of these added expenses need to be factored in when you’re ready to purchase a home. A 20% down is not enough as you make your way through the buying process.

“There are a lot of various transaction fees involved with buying a home, including the down payment, closing costs, moving expenses, plus the inevitable new paint, carpet, or furniture,” McBride said.

“And you have to cover all of these expenses without raiding your emergency savings,” he added. “Because once you’re a homeowner, you’ll need that emergency savings more than ever, usually without warning.”