What's the difference between cash to close and closing costs?

Cash to close is the money you bring on closing day. It adds up your down payment and your closing costs, then subtracts what you already paid, like the earnest money, and any help you receive: seller or lender credits, gifts and other adjustments. Closing costs are only one part of that number, and the person who gives you that number, with every credit itemized, is your lender.

This is for you if you are buying your first home in Texas and want to know what each number means before you sign.

That number everyone remembers is the cash to close, not the closing costs. Nobody explains it to a first-time buyer.

What this article answers

• What is cash to close?
• What are closing costs?
• Why can't seller credits pay my down payment?
• What is the mortgage insurance premium?

The short answer

• Closing costs are what you pay to close the purchase and the loan, like the appraisal, the lender's title policy, and the prepaid insurance and taxes.
• The down payment is your share of the home's price, and it is equity from day one.
• A seller credit helps with your closing costs, not with your down payment.
• Cash to close is what is left to bring after everything is added and subtracted. It appears on page 2 of your Loan Estimate.

What is cash to close?

Cash to close is the total you need to bring on closing day. On your Loan Estimate it appears on page 2, as Estimated Cash to Close.

The Loan Estimate is the document your lender gives you with the breakdown of your closing costs, the cost of originating the loan, and the other terms of your loan. It arrives within 3 business days of your application.

The math works like this: your down payment plus your closing costs, minus what you already paid and minus any help. That help can be a seller credit, a lender credit, a gift that goes straight to the title company, or other adjustments.

In Texas, with the TREC contract, what you already paid is the earnest money. It is delivered, together with the option fee, within 3 days after the effective date, usually to the title company. The earnest money is not lost: at closing it comes off what you need to bring, and the contract applies it first to your down payment, then to your expenses, and anything left over goes back to you. The option fee is credited to the price.

The final figure comes in the Closing Disclosure, which you receive at least 3 business days before closing.

What are closing costs?

Closing costs are what you pay to close the purchase and the loan. The TREC contract calls them Buyer's Expenses. They include the appraisal, the loan origination charges, the lender's title policy and the wire transfer fee.

Prepaids count too: homeowner's insurance, flood insurance when it is required, and the reserves for insurance and property taxes.

The down payment is not on that list. It is your share of the price, and with an FHA loan, the one insured by the Federal Housing Administration, the minimum investment is 3.5% with a credit score of 580 or higher. The down payment is not an expense: it is equity from day one.

Why can't seller credits pay my down payment?

A seller credit helps with your closing costs: the loan costs, the prepaids, or points to lower the rate. It lowers what you bring to closing, but it does not replace your down payment.

How much the seller can contribute depends on your loan type. With an FHA loan, the seller and the other parties to the sale can contribute up to 6% of the price toward closing costs, prepaids and points, and that help can never cover your 3.5% minimum investment. With conventional loans, the limit changes depending on how much you put down.

Your agent's commission sits in a separate paragraph of the TREC contract, and in general it does not count toward that limit.

A family member can give you money for the down payment, with a gift letter. That gift is separate from whatever the seller contributes and does not count toward the seller's limit.

What is the mortgage insurance premium?

An FHA loan, the one insured by the Federal Housing Administration, comes with mortgage insurance: the mortgage insurance premium.

It has two parts. The first is paid up front, it is a percentage of the loan amount, and it is almost always added to the loan. That is why the loan comes out a little larger than the price minus your down payment.

The second is annual and is paid in pieces with your monthly payment. For most loans longer than 15 years, it is 0.55% a year with less than 5% down, and 0.50% with 5% or more. With less than 10% down it lasts for the life of the loan; with 10% or more, it lasts 11 years. These are HUD's rates as of September 2026, and they can change.

Real-life story

Not long ago, some first-time buyers got scared when they saw their closing costs. They had in mind what others had told them about their own, and that number people repeat is almost always the cash to close. I walked them through the difference with this same explanation, and that is what inspired me to write this article.

They decided to move forward. And I suggested something: ask the people they knew the same questions. Do you remember the difference between your closing costs and your cash to close? The number you gave me when I asked you at the start of my search, which one was it?

Once they asked the right questions, the people they knew understood, and even cleared up doubts they had carried since their own purchase.

Frequently asked questions

Can the cash to close change before closing? It can move, because the one on the Loan Estimate is an estimate. The final figure arrives in the Closing Disclosure, at least 3 business days before closing, and that is the one to compare with the Loan Estimate to see what changed.

How is the cash to close paid? It is usually paid by cashier's check or by wire transfer, and the lender asks you to document where the money comes from. For a wire, the instructions are confirmed by phone, at a number you looked up yourself, never with the ones that arrive by email.

Does the earnest money come off the closing costs? It comes off what you bring to closing, which is not the same thing. With the TREC contract, it is applied first to your down payment, then to your expenses, and if anything is left over, it goes back to you.

What to do next

• The Loan Estimate arrives within 3 business days of your application, and page 2 has the first number worth understanding.
• In the days before closing, the bank looks at your accounts again. The simplest thing is to keep the closing money still, with a clear source.
• The closing wire goes out with instructions confirmed by phone, at a number you looked up yourself.

The guide Leaving the Rental covers the costs that come before closing, and Buy explains how I work with buyers.

Information is power. And that is how I want you to feel after reading this article: empowered by knowledge.

If you are buying your first home and your Loan Estimate is already in front of you, you can write to me and we will go over it number by number. In English or in Spanish, at your pace.

Lliliam Foster is a bilingual REALTOR® with Compass serving Spring, The Woodlands, Conroe, Magnolia, Tomball, Cypress, Humble/Atascocita, North Houston/Aldine and the FM 1960 corridor. Information current as of September 2026.

Lliliam Foster, REALTOR® — Compass. This information is general in nature and does not constitute legal or financial advice. Compass is a real estate brokerage licensed in Texas.