Can You Roll Closing Costs Into Mortgage?
When you save money to buy a home, that cash must cover more than the down payment. You also need to plan for the closing costs of the loan, which include the fees and expenses of issuing the loan. In most cases, these costs equal 2% to 5% of the loan amount, which has many homebuyers wondering, “Can you roll closing costs into mortgages?”
You can include these fees in your mortgage, but there are some caveats to consider before doing so. The homebuying experts of Tucson’s mortgage brokers at Altitude Home Loans can help you make the best decision for your budget. Call us at (520) 500-1010 to discuss your situation and find the best solution for your budget and financial goals.
What Does It Mean to Include Closing Costs in a Mortgage?
Closing costs can include a long list of charges, including:
- Loan application costs
- Loan origination fees
- Underwriting and credit report fee
- Title fees, including search and insurance
- Home appraisal and inspection fees
- Real estate agent commissions
- Attorney fees
- Prepaid mortgage interest
- Home and mortgage insurance
- Prepaid property taxes
- HOA fees
Typically, the home buyer pays these costs at the loan closing.
When you see the final tally of all the charges, you might wonder, can you roll closing costs into mortgage loans to avoid paying closing costs upfront and draining your bank account? It is possible, depending on the type of loan. The lender will cover these costs for you in exchange for a larger principal amount or a higher interest rate.
Lenders can only include some closing costs in your mortgage loan. Typically, you cannot add the costs of homeowner’s insurance, prepaid taxes, or HOA fees to your mortgage.
Pros and Cons of Including Closing Costs in Your Mortgage
Rolling closing costs into a mortgage can help you keep more cash. However, doing this increases monthly mortgage payments and how much you’ll pay over the life of the loan since you pay interest on the entire amount. Ultimately, paying closing costs upfront costs thousands less than including them in the home loan.
Borrowing more money also increases the loan-to-value ratio, the amount you owe vs. the value of the property, reducing equity. You’ll have to pay for private mortgage insurance longer and have less leverage to take out a home equity loan or line of credit.
How to Reduce Closing Costs
Instead of rolling the closing costs into the loan, you can reduce them with a few proven strategies, including:
- Negotiating with the seller to cover the costs
- Shopping around for the best prices on services like inspections and title searches
- Taking out a no-closing-costs loan
You will likely have to pay some closing costs, but the final bill will be lower.
Let Altitude Home Loans Help You Purchase Your Dream Home
Taking out a mortgage to buy a home can be complex, but Altitude Home Loans is here to help. Our experienced brokers can guide you through the mortgage process steps and answer questions like “Can you roll closing costs into mortgages?” Call (520) 500-1010 to learn more and start your mortgage application.
