One common question homebuyers ask is whether they can roll their closing costs and prepaid items into their loan. The answer? Yes and no; it depends on whether you’re purchasing or refinancing.

How to Include Closing Costs in Your Home Purchase

If you’re buying a home, you typically can’t add closing costs directly to your mortgage. However, there is a strategy that allows you to cover these costs: seller concessions.

Here’s how it works:

1. Negotiating with the Seller: Instead of asking for a price reduction, request seller-paid closing costs.
2. Adjusting Your Offer: If a home is listed for $250,000 and you were planning to offer $240,000, you could instead offer $250,000 while requesting the seller pay $10,000 toward your closing costs and prepaid expenses.
3. Final Impact: The seller still nets $240,000, while you get $10,000 covered, reducing your out-of-pocket expenses at closing.

What About Refinancing?

When refinancing a mortgage, rolling in closing costs is typically an option, but it depends on your loan-to-value (LTV) ratio.

• If you have enough equity, the lender may allow you to add the closing costs to the new loan balance.
• If your equity is limited, you may need to pay some or all of the costs upfront.

Each situation is unique, so discussing your options with a mortgage professional is key.

Bottom Line

While closing costs usually can’t be directly added to a mortgage in a home purchase, strategic negotiation with the seller can help you cover these expenses. In a refinance, rolling in closing costs depends on your home’s equity. If you have questions about how to structure your loan to minimize upfront costs, get in touch with Collette Horton to explore what works best for you.