Required cash is the amount a mortgage borrower must bring in to close a home loan. For a home purchase, this is the down payment plus closing costs (including lender fees, third party charges like title and escrow, and prepaid items like property taxes and homeowners insurance). For a refinance, that can mean closing costs and any amount the borrower chooses to pay to reduce the loan amount (this is called a “cash-in” refinance).
Required Cash Explained
Required cash is the total cash required for you to close a loan. This cash goes towards down payment, points and other charges paid to the lender. It also goes toward up-front costs like mortgage insurance and other settlement charges associated with the transaction such as title insurance and taxes. Your good faith estimate will show how much cash you need for closing.
When you close on a home, you have to arrive at the closing with the required cash, in the form of a cashier’s check.
The largest part of the required cash for closing is most likely the down payment. This is the percentage of the cost of the home that you are paying up front. For example, if you are purchasing a home for $200,000, and are making a down payment of 20 percent, your $40,000 down payment will be part of the required cash at closing.
Points you may have purchased are another cost associated with required cash. Points are interest that you pay up front in order to get a lower interest rate. One point is equal to one percent of the loan and results in a quarter point reduction in your interest rate. For example, if you have a loan for $180,000 and purchase two points, you will bring your interest rate down a half point and will pay $3,600 at closing.
There are also a variety of charges included in the required cash for closing that are a part of the closing process. These include costs such as attorney fees, title fees and copy fees. The required cash amount will also cover items such as taxes and mortgage insurance.
Prior to closing, the lender will provide you with a good faith estimate that itemizes your fees and tells you how much money to bring to the closing. The money must be brought in the form of a cashier’s check to finalize the transaction.