What Does Cash to Close Mean on a Loan Estimate? A Connecticut Buyer's Guide

Cash to close is the single most misread number on a Loan Estimate. Read it wrong and a house you can afford starts to look impossible.

Recently, a first-time buyer working with one of our loan officers opened her Loan Estimate, saw the cash to close figure, and assumed it was money she needed on top of her down payment. "I was like, this isn't happening," she told him. "I just need to let it go." After he walked her through the form line by line, her answer changed: "That makes a lot more sense."

Here's what the number actually means, and how to check yours.

What cash to close includes

Cash to close is the total amount you bring to your closing, all in. It is not an extra charge on top of your down payment. Your down payment is already inside it.

You'll find it in two places. Page 1 of the Loan Estimate shows "Estimated Cash to Close" near the top, under Costs at Closing. Page 2 has a table called "Calculating Cash to Close" that shows how the number was built.

How the Calculating Cash to Close table works

The table on page 2 starts with your total closing costs, then adjusts for everything else:

• Total closing costs. Lender fees, the appraisal, title work, your attorney, recording fees and prepaid items.
• Down payment / funds from borrower. The part of the purchase price you're paying yourself.
• Deposit. Your earnest money, the deposit you put down with your offer. It's subtracted, because you've already paid it.
• Seller credits. Anything the seller agreed to pay toward your costs comes off the total.
• Adjustments and other credits. Smaller items, like property tax prorations between you and the seller.

Add the costs and the down payment, subtract what's already paid or credited, and you get your estimated cash to close.

Why closing costs look higher than you expected

Part of the closing cost number isn't a fee at all. It's prepaid:

• Homeowners insurance, usually the first year's premium.
• Escrow deposits, so your lender can pay property taxes and insurance on your behalf.
• Prepaid interest, from your closing day to the end of that month.

That money is paying your own future bills in advance. It's one reason two buyers with the same loan amount can see different totals.

What's different about closing in Connecticut

Connecticut purchases close with attorneys, so your attorney's fee shows up in your costs, and your attorney is a good person to ask about anything on the page that involves title or the contract.

Your earnest money is typically held in escrow until closing. Make sure the deposit shown on your Loan Estimate matches what you actually put down. If it's missing, ask your loan officer to correct it.

The Loan Estimate vs. the Closing Disclosure

Your lender has to send a Loan Estimate within three business days of your application. Before you close, you'll get a Closing Disclosure at least three business days ahead of the closing date.

Put the two side by side. Small changes are normal: a tax proration shifts, the closing date moves, a credit is finalized. Larger changes deserve a clear explanation before you sign anything.

Three questions to ask before you panic

1. Is my down payment already included in this number?
2. Is my earnest money deposit shown and subtracted?
3. Which of these costs are prepaid items rather than fees?

If you can't answer those yet, you don't have the full picture.

The takeaway

A Loan Estimate is a standard federal form, and most buyers get one without anyone sitting down to explain it. A number that looks impossible is often a number that hasn't been explained yet.

If you're buying in Connecticut and want someone to walk through your Loan Estimate with you, the team at AFC Mortgage Group does this every day. Learn more at https://www.afcmortgagegroup.net.

Written by Gaetano Ciambriello, CEO of AFC Mortgage Group (NMLS #1783508). AFC Mortgage Group LLC | NMLS #2801 | Monroe, CT | Equal Housing Lender. This article is educational and is not a commitment to lend. All loans are subject to credit approval and program guidelines.