When you buy or refinance a home, you may need to bring funds to finalize the real estate transaction. These funds are often referred to as cash to close. With a refinance, this payment typically isn’t made until closing day, but for a home purchase, you may need to submit funds to your settlement agent twice — once as an initial earnest money deposit, and once again when you close on your new home to cover your down payment and closing costs. 

In this article, we’ll share what’s included in cash to close, some acceptable ways to pay your cash to close funds, along with the pros and cons of each method.

What does cash to close include?

Cash to close is the total amount of money you’ll need to pay to finalize your real estate transaction. The funds include your closing costs, but also additional expenses, like your earnest money deposit and down payment. Here’s a closer look at types of funds that may be included in your cash to close

• Earnest money: This upfront payment is paid and held in escrow after your offer on a house is accepted. Earnest money deposits are generally 1% to 3% of the purchase price, but may be higher in a competitive market.
• Down payment: This is usually the largest portion of your cash to close. Your down payment is the percentage of the purchase price you pay upfront, usually 3% to 20% of the total home cost. You can estimate your down payment amount using our down payment calculator.
• Prepaid expenses: When you purchase a home, some of the homeownership costs have already been paid for by the seller for the year. Prepaid costs, like property taxes, homeowners insurance, mortgage interest and HOA fees, are owed at closing to reimburse the seller for their unused expenses.
• Deposits and credits: If your earnest money is applied to your down payment or you receive credits from the seller or lender, these may be shown as deductions from your cash to close.

How to pay cash to close

Wire transfer

A wire transfer is the method preferred by most settlement agents when paying cash to close, especially for large amounts. A wire is initiated through your bank, and moves funds from your account to the recipient’s account. A bank wire should not be confused with an ACH transfer, which can potentially be disputed or recalled for up to 90 days. Settlement agents typically don’t accept ACH transfers, so be sure to select a wire when sending funds electronically.

Before sending a wire, you’ll need the settlement agent’s bank wiring instructions. Depending on the amount you’re wiring, you may be able to do it online. Many banks allow their customers to wire limited amounts without going into a branch. For larger wires, or if your financial institution doesn’t offer online wires, you will need to visit a branch in person to authorize the transfer.

A wire transfer is often the fastest and most secure way to send funds to your settlement agent. It’s also very easy to document where those funds came from — something your lender may require.

Some banks charge a moderate fee for a wire transfer, oftentimes making it more expensive than other payment methods. However, some financial institutions offer free wires as a perk tied to premium accounts, so confirm the cost with your bank.

Be on alert: When transferring money electronically, fraudsters often target individuals buying or refinancing a home. To avoid falling victim to wire fraud, always obtain written wire instructions directly from the settlement agent. The best way to do this is in person or by calling the agent’s office at a phone number you’ve validated independently. Be very wary of wiring instructions sent to you by anyone other than the settlement agent. Also, be on the lookout for common scams, such as last-minute changes in bank information from someone impersonating your lender, real estate agent, or settlement agent. With most wire transfers, once the money is accepted by the receiving bank, it can’t be recalled. So make sure you know the money is going to the right place before sending it.

Cashier's check

Another way to send cash to your settlement agent for closing is by cashier’s check. These checks can be purchased from your bank for a nominal fee. Although cashier’s checks are considered "certified funds" and are generally accepted in any amount, it’s a good idea to check with the settlement agent before purchasing one to ensure they don’t limit the amount they will accept.

While cashier’s checks are usually cheaper than wiring funds, there are a couple of downsides. Since a cashier’s check is being purchased from the bank and not being transferred directly from your account, you may have to take additional steps to prove to your lender that these funds came from you. As the purchaser, your name may or may not be listed on a cashier’s check (depending on the issuing bank), but a mortgage lender may need to document the source of those funds, and being listed as the purchaser on the check probably won’t meet that requirement.

Another thing to consider is that you cannot immediately recover funds if you misplace a cashier’s check; it’s not as simple as putting a stop payment on a personal check. It can take up to 90 days to reissue a lost cashier’s check, so if you decide to go this route, keep that piece of paper in a very safe place.

Certified checks

A certified check is similar to a cashier’s check, but instead of using the bank’s funds to guarantee payment, the check is guaranteed with funds in your account. The bank stamps the check to certify its validity, and earmarks that money in your account, so you can’t use it for something else. This is another form of certified funds, but it is less common than a cashier’s check, so confirm with your settlement agent that it’s acceptable if you want to use one for your cash to close.

There are other types of certified funds, such as money orders and traveler’s checks. These options are not recommended as forms of payment in a real estate transaction and are not always accepted. Check with your settlement agent and your lender if you wish to use one of these sources.

Personal check

Some settlement agents will accept personal checks, but, because they pose a higher risk to the recipient, most agents will put a cap on the amount. If the sum you need to provide your settlement agent is within their personal check limits, this can be a very convenient way to pay your cash to close. You don’t have to pay a fee to use a personal check, and you don’t need to go to the bank. You can write a personal check while signing loan documents and simply hand it to the settlement agent or notary public. Additionally, you can specify the amount of the check as you write it, rather than having to make this determination earlier at the bank. This might be useful if the amount you need to pay at closing is not dialed in well before your signing appointment.

Other forms of payment

You may wish to pay for your down payment or closing costs using a method not covered in this article. Always check with your settlement agent and mortgage lender to see if your preferred method of payment is acceptable. Generally, non-certified funds are not allowed. These may include cash, corporate checks, foreign checks, international wires, and ACH transfers.

Note: In some states, closing attorneys handle real estate transactions rather than settlement agents. For the purposes of this article, the term “settlement agent” is used to encompass any individual or entity that facilitates the settlement and closing of the transaction.