Buying a home can be such a stressful process because there are so many different things that you have to manage. From managing the financial side, to signing contracts, there are lots of different things that you need to manage at the same time.
This can make it easy to forget things if you are not organized. One thing that you might overlook when you come near to closing is your ‘cash to close’.
Cash to close covers a lot, and it includes the total closing costs for the home, with the fees of the loan amount subtracted. In most cases, your ‘cash to close’ figure will be a positive number, and this will tell you how much money you have left to pay before you can close.
But, in the hurry of sorting everything to close on your home, you might not have realized that your cash to close is actually a negative figure.
In this guide, we’ll be taking a look at what cash to close is, and what it means if your cash to close figure is negative. So, to find out more, keep on reading.
What Is ‘Cash To Close’?
When you are buying a home, then ‘cash to close’ is probably a term that you have heard mentioned a couple of times. This term refers to the funds that a home-buyer needs to pay in order to finalize the purchase of their new home.
In essence, this sounds simple, but ‘cash to close’ is actually quite a complex thing to figure out. This is because a lot of different things are taken into account when it comes to ‘cash to close’.
Within the ‘cash to close’ figure, a number of things will be taken into account. These include the down payment of the home. But will also include a number of fees in relation to legal counsel, escrow, insurance, and appraisal. Due to this, calculating the final ‘cash to close’ figure isn’t all that easy.
It is difficult to monitor the ‘cash to close’ figure because it is also impacted by any refunds for overpayments throughout the process, and will also be affected by things such as seller’s credits.
While it is hard to calculate this figure, your solicitor or mortgage advisor will be able to monitor this for you. It is important that the figure they calculate is correct, otherwise you will be unable to close on your house.
What Is The Difference Between ‘Cash To Close’ And ‘Closing Costs’?
Something that you might get confused about when buying a home is ‘cash to close’ and ‘closing costs’. These two figures are very similar, but they are not the same as one another.
So, to ensure that there is absolutely no confusion between these two terms, as confusion could hold up your ability to close, let’s take a look at the difference between ‘cash to close’ and ‘closing costs’.
As we have said, these two terms are very similar to one another. But they do not mean the same thing. They are similar because closing costs are included within your ‘cash to close’ figure, but these two figures will not be the same as one another.
Let’s take a look at what is included in your closing costs.
In your closing costs, there will be a number of fees included, such as:
– Attorney Fees
– Appraisal Fees
– Application Fees
– Title Insurance
– Origination Charges
– Private Mortgage Insurance
– VA, USDA, or FHA fees (if it is a government backed loan)
– And pest inspection fees
All of these figures combined will form the closing costs of your house. But, they will not be the ‘cash to close’ figure that you need to pay in order to close.
This is because, as we said earlier, the cash to close figure is the total closing costs minus the cost of fees that are rolled into the loan amount.
So, your ‘cash to close’ figure will be the total amount of the closing costs that we listed above, minus some other figures.
These figures include:
– Down Payment (the percentage of your home’s purchase price that you pay upfront)
– Credit (any closing costs that you have already paid in the process of buying your home.
What If Cash To Close Is Negative?
So, now that we have covered everything that you need to know about cash to close, let’s take a look at the answer to the question that you are asking.
In simple terms, if your cash to close balance is a negative figure, you do not have any cash to close to pay. This means that you do not need to pay a final figure in order to close on your home, and you could even be owed money.
Cash to close is a very common term, and you might be struggling to comprehend how it could be a negative value. It isn’t common for a cash to close value to be in the negatives, so if your balance is, this is because you have got an excellent deal on your home purchase.
When you apply for financing for your home, you usually have to pay out quite a lot of your own money on top. But, if your cash to close is a negative ratio, this is because you have qualified for more financing than you actually needed.
It is very rare for a cash to close figure to show as a negative, this is because most lenders will adjust the loan amount down to the exact figure that you need, rather than leave a negative figure.
However, if the bank does not adjust the figure, the money will become yours. But, this is not a cash figure, instead you will only get access to this money when you sell your home.
Should I be Worried About A Negative Cash To Close Figure?
No, you do not need to worry about a negative cash to close figure. In fact, this is actually a good thing. This means that you have qualified for more financing than you actually needed, and you will not need to pay any money in order to close on your home.
If you are worried about the figure, you can always ask your lender to adjust the loan amount so that it is not a negative figure. However, this is not necessary, as a negative cash to close figure will not hold up your ability to close on your home.
Loan Options With a Negative Cash to Close Figure
If you have a negative cash to close figure, this means that you will not need to pay any money in order to close on your home and that there are no closing costs remaining. However, there are still a few loan options available to you if you want to finance your home purchase.
You could apply for a conventional loan, which would give you the option to make a down payment and finance your home purchase.
You could also apply for an FHA loan, which is a government-backed loan that requires a lower down payment than a conventional loan.
You could also look into VA loans or USDA loans, which are two other government-backed loan programs that offer low or no down payment options.
Whatever loan option you choose, make sure that you compare interest rates and terms before you decide on a loan. You want to make sure that you are getting the best deal possible on your home loan.
Will a Negative Cash to Close Hold Up My Closing?
No, negative cash to close figure will not hold up your ability to close on your home. Your closing date will not be affected by a negative cash to close balance.
The only time that a cash to close figure would affect your closing date is if you have a positive cash to close balance. This means that you would need to bring money to your closing in order to pay your closing costs.
If you have a negative cash to close figure, this means that you do not need to pay any money at closing. Your closing date will not be affected, and you will be able to close on your home as scheduled.
What If I Have Questions About My Cash to Close Figure?
If you have questions about your cash to close figure, you should contact your lender. Your lender will be able to explain your balance and help you understand what it means for your home purchase.
Your real estate agent may also be able to answer any questions that you have about your cash to close figure. They will be able to help you understand the loan process and what you need to do in order to close on your home.
Benefits of a Negative Cash to Close Figure
There are a few benefits of having a negative cash to close figure on your home loan.
The first benefit is that you will not need to bring any money to your closing in order to pay your closing costs. This means that you can save your money for other things, like furnishing your new home, making repairs, or even taking a vacation.
The second benefit is that you may have access to more financing than you originally thought. This can be helpful if you find a home that is slightly out of your price range. Having a negative cash to close figure may give you the additional financing you need to make an offer on the home.
Another benefit is that you may be able to get a lower interest rate on your home loan. Lenders often offer lower interest rates to borrowers who do not need to pay any money at closing because it is less risk for the lender.
A final benefit of having a negative cash to close figure is that you will not need to pay private mortgage insurance (PMI). PMI is an insurance policy that borrowers are required to pay if they do not have a down payment of at least 20% of the home’s purchase price.
Having a negative cash to close figure can be a good thing. It can help you save money, and it can help you get a lower interest rate on your home loan. However, it is important to remember that you will still be responsible for making your monthly mortgage payments on time. If you are having trouble making your payments, you should contact your lender to discuss your options.
Will a Negative Cash to Close Figure affect my Mortgage?
A negative cash to close figure will not have any direct impact on your mortgage. However, it is important to remember that you are still responsible for making your monthly mortgage payments on time.
If you are having trouble making your payments, you should contact your lender to discuss your options. Your lender may be able to work with you to find a solution that works for both of you.
It is also important to remember that a negative cash to close figure may impact your ability to get a lower interest rate on your home loan in the future. Lenders often offer lower interest rates to borrowers who do not need to pay any money at closing because it is less risk for the lender.
If you are thinking about refinancing your home loan in the future, you should speak with your lender to see if a negative cash to close figure will impact your ability to do so.
What if My Cash to Close is Negative Due to a Closing Cost Credit?
A closing cost credit is when the seller of the home agrees to pay some or all of your closing costs. This can happen in a few different situations.
The first situation is if the seller is motivated to sell the home and they are willing to negotiate on the price of the home in order to get it sold. The second situation is if the seller has already paid some of the closing costs and they are willing to give you a credit for the remaining closing costs.
Summary
If your cash to close figure is negative, this means that you do not have a balance to pay off in order to close. This is usually because the lender has qualified you for more money than you actually need.
Most banks will adjust the figure down to the exact amount that you need. But if they do not, this negative figure will become tied up in your home, and will become available to you if you sell your home in the future.
