20. Calculating Your Cash to Close

by Local Title

As you navigate through the loan process, understanding the breakdown of your estimated cash to close is crucial for financial planning and decision-making. Page 2 of your Loan Estimate provides an overview of the current estimated cash requirements, detailing various costs and their potential changes leading up to closing. Here’s a closer look at how to calculate your cash to close and what factors to consider:

Origination Charges (A)

Origination charges represent fees collected by the lender for processing the loan application. These charges should remain consistent between the initial estimate and closing, providing stability in your overall cash requirements.

Can’t Shop (B) and Can Shop (C)

Certain costs, categorized as “Can’t Shop” and “Can Shop,” may vary between the Loan Estimate and closing. While “Can’t Shop” costs are subject to a 10% tolerance limit, “Can Shop” costs have no tolerance limit. However, if you choose a service provider from your lender’s list, their actual cost should not exceed 10% of the estimated amount.

Recording Fees (E)

Recording fees, charged by government agencies for maintaining legal ownership records, are also subject to a 10% tolerance limit. Any discrepancies beyond this limit may affect your final cash to close amount.

Prepaids (F), Initial Escrow (G), and Other (H)

Prepaid expenses, initial escrow funding, and other miscellaneous costs, such as owner’s title insurance, may vary from the Loan Estimate without tolerance limits. It’s essential to consider potential fluctuations in these costs when calculating your cash requirements for closing.

Factors Influencing Cash to Close

In addition to the estimated closing costs outlined in your Loan Estimate, other factors contribute to your cash to close calculation. These include loan details, down payment, deposits, credits, and adjustments. By evaluating these components alongside potential changes and tolerance limits, you can gain a clearer understanding of your financial obligations at closing.

Preparing for Closing

As you approach the closing date, it’s essential to review your Loan Estimate carefully and anticipate any adjustments or variations in closing costs. Consider consulting with your lender or financial advisor to ensure you have adequate funds available for closing day. By staying informed and proactive, you can navigate the closing process with confidence and financial preparedness.

Calculating your cash to close involves assessing various costs and factors outlined in your Loan Estimate. By understanding potential changes, tolerance limits, and the overall breakdown of expenses, you can make informed decisions and ensure a smooth transition to homeownership.