How much cash do I actually need at closing?

The four buckets

Cash to close is not one number. It is four buckets that get added together, and each behaves differently.

• Down payment: the percentage of purchase price you contribute.
• Closing costs: lender, title, and government charges, often two to four percent of price.
• Prepaids: the first year of homeowners insurance and the escrow cushion for taxes.
• Reserves: money left over afterward, which underwriting sometimes requires.

What lowers the number

Seller assistance toward closing costs, lender credits in exchange for a slightly higher rate, and down payment assistance programs all reduce the cash you bring. Your earnest money deposit also counts toward the total, since you already paid it.

None of these are free. A lender credit trades a higher rate for lower upfront cost, which is a good trade on a short hold and a poor one on a long hold. It is worth doing the arithmetic rather than assuming.

The part people forget

Do not spend to the last dollar. A house asks for money in its first ninety days: a service call, a mailbox, blinds, a lawn mower. Keeping a cushion after settlement is the difference between a joyful first month and a stressful one.