Can closing costs be included in your loan? It’s a great question to ask since they are one of the biggest “hidden” costs that surprise first-time buyers. Even for seasoned buyers, the extra fees aren’t a cakewalk. However, they are a rite of passage for anyone who wishes to purchase real estate through the right channels.
Rising rental rates and a lower-than-normal housing inventory make buying a home an attractive option for many. Not only do new homeowners pay a lower monthly mortgage compared to renting in most cases, but they also pay off their own property – not another person’s mortgage.
But the current seller’s market and inflation is making it tough for buyers to get the best deals in their loans. On top of this, rising interest rates make monthly mortgage payments higher than they were even a year ago. The Fed isn’t done yet, either, since they are slated to meet more this year and next.
Closing costs typically make up around 3 – 6% of the loan amount. This can be a substantial amount of money that is difficult to pay out of pocket. While the seller could be asked to pay closing costs through the proceeds of their home sale in a buyer’s market, today’s seller’s market leaves little chance for that break.
Your other option is to see if closing costs can be included in your loan. Can it be done, and if so, how do you make sure it happens? Also, are you aware of your third option: freeing equity from your first home to pay the closing costs of your new home? Let’s break down all your options to ensure that closing costs are no barrier to home ownership.
The Short Answer: Yes!
Yes, your lender can roll closing costs into your mortgage, but not every lender does this. If it does happen, your lender will pay for your closing costs but give you a higher interest rate in exchange. This means you’ll have a higher loan balance with a higher interest rate compared to if you paid the closing costs separately. It’s important to check with your lender to see if the option of a no-closing cost loan is available to you.
You can also roll closing costs into your mortgage when you refinance your home. The closing cost amount will depend on the rates in which you refinance and the value of your home, as well as your credit score and other factors your lender finds relevant.
Is a No-Closing Cost Loan a Good Idea?
It depends. If you do not have the assets to pay for closing costs and you’ve exhausted your other resources, then rolling your closing costs into the loan will open a pathway to homeownership. You may take this path after examining your finances and accepting the higher interest rate and payments involved with it.
If you are able to handle the higher payments for a season, you also have the option to refinance when conditions are favorable to you. This may be when interest rates are lower, or if your credit score improves, or if you paid on your loan enough to eliminate PMI.
It’s also important to consider the value of home ownership. Even if your payments are higher, you are paying down the loan of a home that you own, not someone else’s mortgage. Every payment brings you closer to being debt-free while you have the freedom to live in your house as you please. This also opens up a path to build equity, which can help you buy other properties or make future investments. With a rental, you cannot do this.
Paying For Closing Costs with Equity
If you have a second property or are currently a homeowner, you might be able to tap into home equity to pay for closing costs. In fact, many homeowners use the proceeds from the sale of the first home to finance the purchase of their new home.
Marketplace Homes is uniquely positioned to help you if you want to unlock equity to make your offer more competitive. Our special incentive programs like Sell & Stay and Guaranteed Buyout take the stress out of buying a new home because you gain these benefits:
- You can cash out on your first home early so that you can make a no-contingency home sale offer. Meanwhile you receive a lump sum to pay for closing costs and the down payment of your next home.
- When you buy a new build with Marketplace Homes, we will list your first home for 1% commission. This results and thousands of dollars back in your pocket, offsetting the sting of closing costs.
Other Creative Solutions
The great thing about real estate is that the market always cycles and the current seller’s market can and will eventually swing the other direction. You also have options if you currently rent and are afraid of breaking your lease. Check out these other creative options that you can explore as market conditions fluctuate.
- If you need to break your lease, we have an awesome lease buyout program that can save you thousands on fees, which can help you pay closing costs.
- When the market cycles back to buyers’ favor, you may also hedge your bets on asking the seller to pay for closing costs out of the proceeds of their own home.
- It’s legal to use gift money toward closing costs. If you have a relative or friend who is willing to lend you money for closing costs, your lender should allow it. Just let your lender know as soon as possible about your plan.
- If you’re a first-time home buyer, you may qualify for some local down payment and closing cost assistance programs. Do your research and you may find some surprising benefits!
As you can see, when you get creative, you can get the best real estate deal and ensure that closing costs are no barrier to getting the best interest rates and mortgage payments.
Can Closing Costs Be Included In Your Loan?
No matter your financial needs, Marketplace Homes can help you find the right property so you can plan your closing costs. Our expert real estate agents are ready to help you list, market or find a new home. Whether you are a first-time homebuyer or a seasoned real estate investor, we can assist you with buying one home or many investments in bulk. Contact us to find out more information.
Alicia Persson is the real estate content writer for Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined MH, she was a freelance writer for 7 years, providing real estate and home living content for boutique digital marketing agencies.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When she is not writing, she plays keytar and does female lead vocals in a local 90’s band or spends time with her amazing family.