The Difference Between Closing Costs and Cash to Close | Cleveland Bradley County Teachers Federal Credit Union

If you are hoping to purchase a home, you have likely been saving for some time. Most people are familiar with the requirement of a down payment to purchase a home—and because it is typically a large amount of cash upfront, it is certainly worth considering.

However, the down payment is not all that is involved in purchasing a home, and future homeowners are wise to budget for all the elements involved ahead of time. Below, we will look at closing costs as well as the overall “cash to close” required for purchasing a home so you can be sure you are budgeting accordingly!

What Are Closing Costs?

Closing costs encompass the expenses required for homebuyers to close the deal on their purchase and are typically between 2 and 5% of the overall purchase price. Closing costs include:

• Loan origination fees, which go to the lenders for creating the loan
• Service charges, for appraisals, credit reports, title search and more
• Taxes, to cover the transfer of the property

The Other Expenses for Cash to Close

The down payment. Depending on your loan qualifications, your down payment will typically be between 3 to 20% of the purchase price. This is often the biggest single expense when it comes to buying a home.

Earnest money. The earnest money is cash that you will submit alongside your offer to showcase your intent to purchase to the seller—it is sometimes called a good faith deposit. If the seller accepts your offer, you will pay the earnest money at that time and then it will be applied toward your down payment or closing costs when the sale is finalized.

The home inspection. When you purchase a home, paying for the home inspection is your responsibility—and this will typically cost between $300 and $500 depending on the extent of your inspection. This may seem like a lot, but it is a valuable thing to invest in. The inspection will flag any potential issues with the home, maintenance items to consider and things that the seller must do before the home can be sold, which can help you negotiate.

If you are interested in learning what type of mortgage you qualify for, we can help! Contact us today to learn more about our loan options.