Required Cash

Required cash is the total amount of funds which a buyer must deliver to close on a mortgage or to finalize a refinance of an existing property. This process 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.

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. 

• A wire transfer is used to electronically transfer funds from one bank or financial institution to another. Physical funds do not exchange hands. Often the wire transfer provides the funds needed by the bank such as loan origination fees and points. 
• A cashier's check is a check written and signed by a financial institution and made payable to a third party. The buyer will pay a small fee for the cashier's check and will exchange cash for the written draft coving the money required for closing. These checks frequently cover the down payment or other funds due to the seller of the property.

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.

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 the 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.

The largest portion of the required cash is the down payment for the loan. Historically, the down payment was 10- to 20-percent 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.

A second component of required cash is 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 up front 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.