• The Mortgage Process: Cash To Close

  • Know What Makes Up The Cash To Close On Your Home Loan

    Closing CostsWe believe that all clients need to fully understand what it takes to close on their home loan. The cash needed to close has consistently provided confusion in all borrowers’ minds. Understanding what this consists of will better prepare you for the mortgage process and buying your dream home.

    There are 3 main components that make out your cash to close. The easiest way to understand what composes the cash needed to close is to look at a real example.

    Let’s say we have a $150,000 purchase price and the buyer is putting 10% down. The cash needed to close breaks down as follows:

    • $15,000 – Down Payment (This can range from 3% to 20% down or more)
    • $2,500 – Closing Costs (Usually between $2,200-$3,000)
    • $4,613 – Prepaid Items
    • $22,113 – Grand Total
    [big_button link=”http://www.firstcommercefinancial.com/get-rate-quote/” bgcolor=”#5dfc0a”]Free Rate Quote[/big_button]

    The prepaid items are certainly the most confusing and can be divided up into 4 categories:

    1. Escrow Account: The Lender will establish an account to pay your property taxes and home owners insurance, only if you put less than 20% down.
    2. Property Tax Pro-Rations: In southeast Michigan, property taxes are paid one year in advance. You must reimburse the Seller for taxes already paid. This is required regardless of down payment amount.
    3. Home Owners Insurance: 1st year policy is always paid in advance and paid 2 weeks before closing. This is required regardless of the down payment amount.
    4. Prepaid Interest: You are required to pay for the interest on the remaining days left in the month from the day you close.

    In our example, the $4,613 can be broken down into:

    1. $1,900 – Escrow – This consists of 7 months worth of property taxes and 2 months worth of home owners insurance.
    2. $1,500 – Tax Pro-Rations – This consists of 6 months worth of taxes.
    3. $900 – Home Insurance – Typical one year policy.
    4. $313 – Prepaid Interest – If we closed on the 15th of June, you would have to pay the remaining 15 days worth of interest at closing.
    5. $4,613 – Grand Total
    [big_button link=”http://www.firstcommercefinancial.com/apply-now/” bgcolor=”#5dfc0a”]Apply Now![/big_button]

    Keep in mind the tax pro-rations usually are the most confusing, and some Lenders will not include this as it is not a Lender related amount.

    [big_button link=”http://www.firstcommercefinancial.com/2011/06/16/cash-to-close-explained/” bgcolor=”#5dfc0a”]Watch Video[/big_button]
    Be Sociable, Share!
    • Madelyn

      The seller could be paying some of the settlement charges bringing the funds to close down. Also, you have earnest money that you put down which should also lower the cash to close.