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What's the difference in closing costs vs. cost to close? That is an essential question for first-time homebuyers, inexperienced sellers, and novice investors to ask. 

The two terms sound similar, but they mean different things. So, check out this guide if you do not know the differences in closing costs vs. cost to close. In it, you will learn everything you need to know about these two dollar amounts, how your escrow agent calculates them, who is responsible for paying each, and where you can find these two figures on your closing statement. 

Closing Costs vs. Cost to Close: Why Do You Need to Know the Difference?

Closing costs and cost to close reference two separate closing figures. Your title agent should call you at least 24 hours before the closing to tell you the total cost to close. You have to keep that figure safe, so you can go to your bank and have them initiate a wire transfer or issue a cashier's check for the cost to close. 

Closing Costs vs. Cost to Close: Who Pays?

Typically, only a buyer would pay the cost to close, while the buyer and seller pay some of the closing costs. 

The only time a seller would need to bring funds on the day of closing would be if the seller owes more than the buyer paid for the property. In that case, when the escrow agent adds all of the seller's closing costs and the payoff. There could be a negative balance. 

If there is, the seller must remedy that before the escrow officer can fund the transaction. 

What is Cash/Cost to Close?

Cash to close is the actual dollar amount you need to pay on the day you close. People in the industry refer to this amount as the cost to close or cash to close. However, you can't pay the cost to close in cash. 

Instead, you have to bring certified funds (bank-issued cashier's check), or you can have the cost to close wire transferred to the title agent. If you decide to do a wire, it is a good idea to do it several hours before closing or the day before. 

Most businesses stop sending wire transfers at 4 pm. So, if you are supposed to close on a Friday afternoon, and your funds do not reach the title company on time, your escrow officer will not be able to fund the loan, and you will not receive the keys to your new home until Monday morning at the earliest. 

What are Closing Costs?

Closing costs are all fees associated with the lender and title company processing your file. 

closing cost calculations

Application Fee/Credit Report Fee

Most lenders charge an application fee of between $25 and $100, which pays for the borrower's credit report and other application processing expenses. 

Appraisal Fee

Most lenders require an appraisal during the underwriting phase. The borrower is responsible for paying the appraisal fee, which is usually between $400 and $550

Origination Charge

An origination charge is a fee the borrower must pay for the lender to open their mortgage file and underwrite the loan. 

Prepaid Interest

Borrowers sometimes choose to pay a portion of the interest upfront to lower their rate over the life of their loan. Since the prepaid interest is collected upfront, it affects the cash you need to bring to closing. 

Title Search / Title Insurance

Getting title insurance when you close on a property is always a good idea. However, lenders require title insurance on all of their loans. They may also need title policy endorsements to add coverage for the survey and other items. 

An escrow officer calculates the title policy fee according to guidelines set forth by the local Department of Insurance in the state that governs the property. The least expensive title policy costs $238.

Attorneys Fee

Texas and Oklahoma, real estate laws, require an attorney to review the vesting documents before a file can close. The charge for attorney reviewing documents is typically included with the attorney document fee.  

Settlement Fee

The title company may assess a settlement fee of between $300 and $450, which it uses to pay for things like the loan document signing agent fee if you close with a mobile closer. 

Recording Fee

Recording documents as soon as a file closes and funds to transfer an ownership interest in the property to the new owner. The recording charge differs from county to county. 

However, many counties across the country charge $5 for the first recorded page and $1 for each additional page. So, for a 20-page Deed of Trust (DOT), you would add the first page ($5) and $1 for each subsequent page. 

So, your total recording charge for the DOT would be $24. There are usually two to three recordable documents for every closing file. So, you would also need to calculate the recording charge for each additional recording. 

Survey Fee

If the seller cannot provide a current survey for the subject property, the title company will need to order a new one. The title and loan underwriters will want a copy of the recent survey showing all easements and improvements. 

Surveys typically range from $325 to $550 for an average-sized single-family home on a standard neighborhood lot. For more extensive tracts of land, surveys can cost hundreds or thousands more. 

Private Mortgage Insurance

When a borrower puts less than 20 percent down on a home purchase, the lender typically requires private mortgage insurance (PMI) until the loan-to-value (LTV) ratio is below 80 percent. If PMI is a requirement for your loan, you will be charged an amortized portion of the PMI for the first month on the Closing Statement. 

HOA/Tax Certificate 

On each file, the escrow officer obtains a tax certificate. The certificate shows any outstanding taxes, the tax rate, and annual totals for the property. The certificate also gives the HOA information if the property is in an HOA. Generally, tax/HOA certificates are less than $75 unless they include many parcels.

HOA Statement of Accounts(SOA)

When the title company orders an HOA certificate, most Homeowners Associations send a preliminary report that states that the title company has to contact the management company directly and pay for an HOA SOA before they send the account balance information. The SOA can range from $75 to $500.

The HOA may also require both the seller and buyer to pay a fee. Some associations charge an initial new member fee between $150 and $500. The HOA may also require the seller to pay a Resale Certificate fee ranging from $150 to $500.

These HOA requirements are relatively new and significant. You can't close unless you pay these fees, which is entirely non-negotiable. The association has a specific method the title company must follow to obtain this information which usually requires them to pay upfront for the HOA resale certificate or SOA. Then, the title company must charge the buyer and seller the amounts shown on those documents.

Tax Prorations

The title company prorates taxes between the buyer and seller. At closing, the seller pays a credit to the buyer for the amount of time they owned the property during the year. The credit is given to the buyer because they will be responsible for paying the taxes in November when the tax assessor issues tax statements.

When you close later in the year, around October or November, the escrow officer will add it to the closing statement if the tax certificate shows the taxes for the year are due. The escrow officer will give the seller credit for the days the buyer will own the property if there is an amount due on the tax certificate and pay the taxes in closing.

HOA Prorations

HOA prorations are done like taxes, except the owner paid the HOA at the beginning of the year. So, the title company has to give credit to the seller.

Home Owner's Insurance (HOI)

Lenders require borrowers to have homeowners insurance. So, the title company collects for the first-year HOI upfront.

Home Warranty

It is customary for sellers to buy a home warranty for the buyer. Most sales contracts include a dollar amount the seller is willing to pay. The title company then asks the buyer which home warranty company they want to use and orders the warranty.

Realtor Commissions

The seller of the real property pays a six percent commission to the realtors. Usually, the six percent commission is split evenly between the listing agent and the selling agent. So, each receives three percent.

Closing Costs vs. Cost to Close: Who Pays?

The title company adds dozens of charges to the closing statement. Each line on the statement is a credit or charge and prorated items are split between the two parties. There are some things the buyer or seller pays for customarily, but everything is negotiable. And, if the buyer and seller agree to it in the sales contract, the title company follows the instructions provided on the sales contract to complete the closing statement.

However, sellers are usually responsible for:

  • Survey
  • Home Warranty
  • Tax Prorations
  • HOA Prorations
  • Realtor Commissions
  • Title Policy

Charges a buyer is usually responsible for at closing include:

  • HOI
  • Tax Certificate
  • HOA Certificate
  • Prepaid Interest
  • Origination Fee
  • Document Recording
  • Title Policy
  • Settlement Fee
  • Attorney Doc Review Fee

Closing Costs vs. Cost to Close: How to Reduce 

In real estate transactions, everything is negotiable. That does not mean the lender will loan you money if you do not comply with their rules. However, asking for or negotiating a more advantageous deal does not hurt.

reduce closing cost

Shop Around

When most people close, they use the vendors suggested by their agent, lender, and title company for necessary services, like appraisal reports, pest inspections, homeowners insurance, surveyors, etc. However, if you are willing to do the work to compare different vendors to see which offers the best prices, it could benefit you greatly.

The title company and lender vendors are not always the most affordable. So, shopping around and ordering these items could save hundreds or thousands in closing costs, reducing the total cost to close.

Ask the Seller to Help 

It is not uncommon for sellers to offer buyers a closing credit that helps reduce the cash to close the buyer must pay. However, getting a seller to agree to this can be challenging after they execute a sales contract. So, if you foresee needing assistance with cash to close, you should address that when you submit your original offer.

Right now, the real estate market has been very competitive for buyers, which means sellers are not as likely to offer closing cost assistance, but it is worth asking.

Apply for Down Payment/Closing Cost Assistance

Government programs and even private grants throughout the country help with down payment and closing cost assistance. In some cases, they give first-time homebuyers as much as $30,000 in the form of a second lien to assist with paying closing costs the buyer would otherwise have to bring cash to closing to cover.

These programs have income requirements, and most require applicants to complete a first-time homebuyer education course and submit the certificate with their application. The turnaround time for these programs varies depending on the agency offering them. However, you can typically get approved in four to six weeks.

Most downpayment assistance programs forgive the loan after the borrower has lived in the subject property for five years or more.

Close at the End of the Month

Closing at the end of the month may help to reduce the amount you need to bring to closing because you do not have to pay for an entire month of prepaid taxes and interest. An end-of-month closing will help some, but it will not significantly reduce the cash to close.

Use an Existing Survey

If the seller has a copy of the survey, you typically do not have to get a new one unless there have been permanent changes to the property. Sometimes, if the seller added something like a shed that is there permanently but could be moved and does not add value to the home, the escrow underwriter may make an exception and allow the survey.

existing survey

Cases, where the underwriter approves an outdated survey, are few and far between. When they allow it, they will likely add restrictions to the title policy, excluding claims covering the survey encroachments. Suppose the title company and lender disapprove of the existing survey. In that case, you can try contacting the survey company and asking if they can do an update, which is typically less than ordering a new survey.

Negotiate Lender-Specific Fees

The lender fees make up a substantial percentage of the total cash to close. Some borrowers are nervous about attempting to negotiate with their loan officer, but it is worth talking to them or directly asking them to remove:

  • Application Fees
  • Underwriting Fees
  • Loan Processing Fees
  • Broker Rebates
  • Appraisal Fees
  • Rate Lock Fees

Having excellent credit usually helps when negotiating with a lender. Suppose your loan officer denies your request to reduce the loan-associated fees. Ask them if they are aware of any programs that help with downpayment and closing costs.

Closing Costs vs. Cost to Close: FAQs

Closing costs and cash to close can be challenging to understand. Furthermore, there are many other factors these figures affect. Read the answers to these frequently asked questions about closing costs vs. cost to close to learn more.

Closing cost vs cost to close FAQs

How is Estimated Cash to Close Calculated?

The preliminary closing statement lists most of the charges the title company will include on the final statement. It gives a good idea of the amount the buyer and seller must pay on the closing day.

Escrow officers use a program to complete the close statement. The title officer enters the amounts for taxes, HOA dues, and other prorated charges to calculate the split between the buyer and seller.

If you know how the closing statement calculations are not hard to do manually. You add all the charges (HOI, survey, HOA, taxes, etc.) and all of the credits (including the loan amount, prepaid down payment, and other prepaid items and credits) and then subtract them to get the total cost to close.

What Does it Mean Cash to Close?

Cash to close and costs to close are two terms used interchangeably. The term' cash to close' is a bit confusing because some think it means you have to bring cash to the closing.

Title companies require that people pay in certified funds. Wire transfers and cashier's checks are examples of certified funds.

What if I Can't Afford Closing Costs?

Numerous government programs offer down payment assistance for people who otherwise qualify for a mortgage. Some programs allow you to close with as little as $350 down.

Downpayment assistance programs (DAP) usually require you to take an 8-hour HUD-approved home buying course and pass the end-of-class exam. The home buying class teaches how to manage homeownership responsibilities and finances.

The amount each program provides for closing cost assistance differs. However, the aid can range from a few thousand to $30,000. When you participate in a DAP, the amount you receive varies depending on the program rules in your area.

The money given by these programs is a loan, and it is recorded against the property as a second lien. The second lien is forgiven if the borrower lives in the subject property as their primary or homestead for five years or more. This means you do not have to pay back the remainder of the loan. If you move before the five-year period ends, you have to pay back a prorated loan amount.

Can Closing Costs Be Included in Loan?

Rolling closing costs into your loan reduces the amount you have to bring to closing. However, you have to pay interest over many years on any closing cost that you roll in. So, from a long-term financial standpoint rolling in closing costs is not beneficial.

Can You Put Closing Costs on a Credit Card?

Homebuyers may use a credit card to pay for some prepaid items needed for closing, like the survey and inspection. However, it is impossible to give the title company a credit card to pay for closing costs or cash to close.

Additionally, you must be extremely careful about charging anything before closing. Some people assume that once they are pre-approved, they do not have to worry about their credit report anymore, and they can spend as much as they want.

The lender continues to check your credit until right before you close, and making large purchases can impact your scores negatively, especially if your cards are close to the limit.

What Should You Not Do After Buying a House?

After you execute a sales contract, there are a few things you should and should not do to ensure you close on time. Below is a list of things you should avoid doing while you are in escrow:

  • Do not apply for any new credit
  • Do not go on a shopping spree
  • Do not buy/lease a new vehicle
  • Do not close accounts or cancel cards
  • Do not switch banks
  • Do not spend your savings
  • Do not buy large purchases on credit
  • Do not spend the money you need to pay the cost to close

The lender pulls your credit report several times throughout the approval process. If your credit score declines throughout the process, you might lose your financing. So, putting off large purchases and avoiding financial missteps is a good idea.

Closing Costs vs. Cost to Close: Do You Know the Difference?

Closing costs vs. cost to close the difference is closing costs are the items the buyer and seller must pay on the closing statement, and the cost to close is the dollar amount of certified funds each needs to bring to the closing. The closing costs are very important in shopping loans, especially the origination, application, and processing fees. Regarding how much money you need to bring to the closing table, the cash or cost to close is essential.

With a firm grasp on the differences in closing costs vs. cost to close, you can often negotiate better deals or reduce your cash to close by using assistance programs or requesting seller assistance. If you still have questions about closing costs and the cost to close, your realtor or escrow agent are a great resource.

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Written By:
Amy Gilmore
Amy has over ten years of experience as a title company branch manager and closing trainer. Her escrow book of business includes national lenders, real estate wholesalers, investors, property developers, and top-selling realtors. Amy is passionate about teaching the benefits of investing in property and mentoring others in the real estate industry.
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