Yale Roth M.A., M.Ed

I get this mortgage question from time to time – especially from first time home buyers: “Can I roll my closing costs into the mortgage amount?”

Well the answer is, “It depends.”

If the mortgage transaction is a purchase, you are not able to include your closing costs into your mortgage amount.  You can, however, negotiate a seller credit whereby the seller of the home can pay your closing costs.

This would be called a “seller credit” to be applied to the home buyer’s closing costs.  The credit ranges between 3% and 6% of the purchase price, depending on the size of your down payment.

You can also negotiate a lender credit.

Your mortgage company, who is considered an “interested third party,” can give you a credit to be applied towards your closing costs.

If the transaction is a refinance, you can roll your closing costs into your mortgage amount, as long as the loan to value ratio doesn’t exceed the lender’s guidelines.

In addition, if you’re refinancing and you choose to include your closing costs in your mortgage balance, the transaction type is still called a rate and term refinance, not a cash out refinance.

After you roll your closing costs into your mortgage amount and you’re still getting more than 1% or $2000, which ever is less, back to you, then the transaction type changes to a cash out refinance.

The mortgage transaction type matters only if it effects the pricing of the mortgage.  By “pricing” I mean the lender fees you’re paying to get the mortgage rate you want.

The pricing or cost of the mortgage rate is only effected if the loan to value ratio is above 60%.

The reason why mortgage people get a bad rap sometimes is because the mortgage rates and costs to get the rates are so nuanced and depend on the mortgage parameters.  What I mean by mortgage parameters are the credit scores and the loan to value ratio.

So if the mortgage parameters change, the pricing can change and sometimes the mortgage rate can change.  This can happen when the appraisal comes back lower than what’s expected and as a result the loan to value will increase.

Often times, homeowners think there is a “bait and switch” going on when there isn’t.

In conclusion to the mortgage refinance question, “Can I roll my closing costs into the mortgage amount?‘, you can if the mortgage transaction is a refinance and the loan to value ratio doesn’t significantly change after the mortgage amount increases.

If the mortgage transaction is a purchase, you cannot; however, you can negotiate with the seller  a “seller concession or seller credit” which can cover your closing costs or you can lock a slightly higher mortgage rate and have the mortgage lender pay your closing costs.

Related Posts:

• Mortgage Questions – How Do I Calculate My Closing Costs For My Mortgage Refinance?
• Are Mortgage Rates Higher If You Finance Your Home Loan Costs?
• Is Your Mortgage Rate Higher If You Do A Cash Out Refinance?
• Mortgage Refinance Questions – HARP? Is It For You?
• Mortgage Rate Questions – “Are The Mortgage Rates The Same For A Cash Out Refinance?”