Be Financially Prepared for Closing Day

Purchasing a home involves more than just securing a mortgage and making a down payment. When closing day arrives, buyers must be prepared for several financial obligations beyond the initial deposit.

“‘Closing costs’ is a broad term encompassing fees paid to your lender, third parties that had a role in the transaction such as an appraiser and title company, any required government or property taxes, and prepaid items like property insurance and mortgage interest,” said Greg McBride, chief financial analyst at Bankrate.

While a “cash payment” does not mean bringing physical cash, buyers should be ready with a cashier’s check or wire transfer, as personal checks and credit cards are typically not accepted.

Here are the four main payments buyers need to have ready at closing.

1. Closing Costs

Both buyers and sellers are responsible for some form of closing costs. Buyers can expect fees related to:

• Mortgage financing
• Credit checks
• Title services
• Home inspection
• Appraisals

While some costs may have been paid earlier in the process, buyers must cover any remaining balances before the transaction is finalized.

2. Down Payment

The down payment is the largest upfront expense when purchasing a home. If an earnest money deposit was made earlier, it will be applied toward the total down payment. The remaining balance must be paid in full at closing.

3. Mortgage Interest

Per diem interest refers to the interest accrued between the closing date and the start of mortgage payments. The total amount depends on the closing date and the lender’s specific policies.

For example, if a buyer closes on October 13, they will owe interest for the remainder of the month before their first mortgage payment on November 1.

4. Prepaid Charges

Prepaid expenses cover costs such as:

• Homeowners insurance
• Property taxes
• HOA fees (if applicable)

Lenders typically hold these funds in escrow and distribute payments on the buyer’s behalf as needed.

Estimating Your Closing Costs

The exact amount needed at closing varies by location and home price. Within three business days of submitting a mortgage application, lenders provide buyers with a loan estimate, which outlines expected closing costs and other financial obligations.

"Most figures in the loan estimate are just that—estimates," McBride explained. "While lender fees are accurate, third-party charges and government fees can fluctuate, so buyers should be prepared for some variation."

Buyers should also factor in moving expenses, home maintenance, and potential renovations when budgeting for their new home.

Final Thoughts

Closing on a home requires careful financial planning beyond the down payment. Buyers should be prepared for closing costs, mortgage interest, and prepaid expenses to avoid last-minute surprises and ensure a smooth transition into homeownership.

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