Can You Roll Closing Costs Into Your Mortgage?

Closing costs can be a major financial hurdle for homebuyers, possibly adding thousands of dollars to an already daunting purchasing process. So, for many prospective homeowners, one question arises: Can you roll closing costs into your mortgage and reduce the money you need upfront? 

The short answer is yes, lenders CAN include a number of closing expenses in your loan, but there are a few immediate and long-term downsides. But first, let's examine what closing costs are. 

What Are Closing Costs? 

Closing costs are a collection of fees a buyer must pay to close on their home or refinanceThe process of paying off your existing mortgage and replacing it with another to save money or pay off your loan sooner.refinanceThe process of paying off your existing mortgage and replacing it with another to save money or pay off your loan sooner. their current loan. They help pay the people who’ve performed services for the loan throughout the homebuying process, including the appraiser and settlement agent. 

While “closing” is in the term’s title, buyers may be asked to pay some of the fees once an action is completed. Buyers may have to pay for their appraisal or home inspection to those professionals upfront, but these fees usually come at closing and can be rolled into your loan. All closing costs will be itemized and appear on the Settlement Statement.

Examples of common closing costs include, but are not limited to:  

• Property taxes  

• Transfer taxes 

• Homeowners insurance 

• Title search fees 

• Appraisal fees 

• Attorney fees 

• Lender fees 

• Mortgage insurance 

• Title insurance 

Every state has its own closing cost guidelines; some fees listed above may not apply to a buyer’s unique situation. 

Expert Tip

Transfer taxes, mortgage insurance, and title insurance are not flat-rate costs. Rely on your lender for more information on these items.

Who Pays for Closing Costs? 

Both buyers and sellers can pay closing costs, but generally, a buyer will typically pay most of the fees. However, a buyer may be able to negotiate with the seller to cover some or all the closing costs as part of the sales contract (depending on the loan type). Also known as seller concessionsThe amount of money the seller pays toward closing on the buyer's behalf.seller concessionsThe amount of money the seller pays toward closing on the buyer's behalf., this contribution makes the home purchase more affordable and offers advantages to both parties.

And keep in mind, sellers have limits to how much they can contribute toward closing costs. This amount depends on the type of loan, occupancy status, and how much money the buyer puts down upfront. 

What’s the Cost of Closing Costs? 

Generally, closing costs are around 2-6% of your home’s purchase price. You can do this simple calculation to see how much you’ll need for closing costs. After you apply for your loan, your lender will send you a Loan EstimateThe three-page form that outlines all the details of your prospective loan.Loan EstimateThe three-page form that outlines all the details of your prospective loan. that breaks down your interest rate, monthly payment amount, taxes, insurance, and closing costs. The closing costs listed on the document can change throughout the loan process, but it should give you an idea of what to expect once you’re a full-fledged homeowner. 

You can also ask your lender for a “closing cost worksheet” that will itemize your closing costs and give you estimates of what they will be. 

Expert Tip

Closing costs vary by lender, loan type and terms, down payment, and insurance. Reach out to our team for an official closing cost estimate.

Can Closing Costs Be Included in a Mortgage? 

The short answer: Yes, closing costs can be included or rolled into your mortgage. Also known as financing your closing costs, rolling closing costs into your mortgage can provide short-term financial relief, as you don't need to pay them upfront at closing.   

But we should note that these fees are still paid over the life of the loan (more on that later), potentially costing you more in the long run. This strategy might be beneficial if you prefer to maintain your savings at closing, especially if you have a low mortgage rate. You could then gain interest on those savings by immediately putting them into an emergency fund or home-repair savings fund. 

During your homebuying journey, some lenders may offer a higher interest rate upfront to offset the cost of closing. And remember, many down payment assistance programs cover closing costs, too. Ask your Mortgage Banker for programs in your area. 

Expert Tip

Rolling closing costs into a loan can be differ between every loan type. For instance, on Department of Veterans Affairs (VA) loans, the funding fee is the only closing cost that can be rolled into a VA loan.

Is It a Good Idea To Include Closing Costs in a Mortgage? 

Including closing costs in your mortgage can be a convenient option for some homebuyers, but whether it's a good idea for you depends on your specific financial situation and future goals. Consider the following factors before making your decision: 

• Cash Flow: Including closing costs in your mortgage allows you to spread out the expenses over the life of the loan, which can help save money and preserve your cash flow at the time of purchase. This can be particularly beneficial if you don't have enough cash on hand to cover these costs upfront.  

• Total Cost: As we mentioned before, rolling closing costs into your mortgage means you'll pay interest on those costs over the loan’s lifetime, thus increasing the total amount you'll pay for your home in the long run. You may end up paying more in interest than if you had paid the closing costs upfront. 

• Long-Term Financial Goals: Consider how including closing costs in your mortgage fits into your long-term financial goals. If you prioritize minimizing interest payments and building equity in the short term, paying closing costs upfront may be your best option. 

But here’s a silver lining: As long as you maintain or grow your financial picture, you can always refinance down the road to lower your monthly payment and regain some savings. 

What if I Can’t Afford My Closing Costs? 

If you’re having trouble gathering the funds to close on your loan, don’t lose hope just yet! Work with our team to lower your fees or create a budget that’ll work for, not against, your closing cost fund. Call today and we’ll compare loan estimatesThe three-page form that outlines all the details of your prospective loan.loan estimatesThe three-page form that outlines all the details of your prospective loan., discuss buying pointsFees paid directly to the lender for processing your loan or reducing your interest rate.pointsFees paid directly to the lender for processing your loan or reducing your interest rate., and research your homeowners insuranceCoverage to repair a home or replace personal belongings if they’re damaged or destroyed by a disaster.homeowners insuranceCoverage to repair a home or replace personal belongings if they’re damaged or destroyed by a disaster. options – three ways to reduce your closing costs. Take the first step on the path to homeownership today!