Required Cash

What Is Required Cash?

Required cash is the total amount of funds that a buyer must deliver to close on a mortgage or to finalize a refinance of an existing property. The delivery of the required cash amount typically takes place at a title company or escrow office and will vary by state location and sale type. During closing, the participants will review, authorize, date, and sign numerous legal documents, usually in front of a notary. Required cash is also known as cash to close.

Understanding Required Cash

Required cash describes the final amount that a buyer or refinancing homeowner brings to close a loan. Delivery of required cash to the lender, the seller, or other parties can be via wire transfer or a cashier's check. 

Closing costs are the expenses, over and above the price of the property, that buyers and sellers usually incur to complete a real estate transaction. Costs incurred may include loan origination fees, appraisal fees, title searches, title insurance, surveys, taxes, deed recording fees, and credit report charges. Also, the required cash may include any down payment, money to purchase points, insurance premiums, and other fees and tax payments.

Components of Required Cash

The largest portion of the required cash is the down payment for the loan. Historically, the down payment was 10% to 20% of the purchase price. In the early 2000s, as home prices rose steadily and lending practices loosened, lenders offered loans with no required down payment. These were known as zero-down or no-money-down loans. Defaults on these loans contributed significantly to the financial crisis of 2008, and they become rare after that.

Another component of required cash is the money used to buy points. Buying points allows the borrower to lower their interest rate in exchange for cash at closing. Essentially, the borrower is paying interest upfront in order to secure a lower interest rate over the life of the loan.

The loan estimate form will also list a series of other fees associated with the transfer of ownership. Required cash includes these charges. Such charges include a loan application fee, pest inspection fee, title search fee, and a survey fee. Lenders must also list property taxes and prepaid interest due during the first month of ownership.

Forms Listing Required Cash

The Consumer Financial Protection Bureau (CFPB) issued a ruling in 2015 to consolidate the forms lenders use to disclose required cash to prospective and closing buyers. This rule combined the disclosures mandated by the Truth in Lending Act and the Real Estate Settlements Act. 

The new forms, designed to satisfy both laws, are known as TILA-RESPA Integrated Disclosures (TRID). Under the 2015 rule, lenders are required by the federal government to list required cash on a loan estimate form within three days of receiving a borrower’s application. Again, three days before closing, the lender is required to supply an updated estimate on a closing disclosure form. The two documents are almost identical, which allows the borrower a chance to look for material changes. Prior to 2015, this information was on a good faith estimate (GFE) form.