Can I Roll My Closing Cost's Into My Mortgage Payment?

Can I roll my closing cost into my mortgage payment?

3 Answers

Not directly.  I think your question is " Can I roll my closing costs into my mortgage?".  The best answer is no, but with certain exceptions.  USDA's rural development program allows you to roll in closing costs above the purchase price, should the appraisal come in higher, but that is unusual.  USDA allows closing costs, prepaid and other allowable items to be financed in that instance.

In most cases, the seller should be asked to pay your closing costs, prepaid items and points prior to contract ratification.  It theoretically can be done after, but the seller is under no obligation to assist you after you've come to an agreement.  Reference back to the lender's limits on the percentage of closing costs the seller can pay, per the loan type you are receiving.  And, remember, the gross sales price is the number that the appraisal must reach.

The lender can pay your closing costs - in a form called " premium pricing."  Lets say that the current market for a 0+0 quote is 5.25%.  If your loan officer offered you 6%, but paid 2% of your loan amount towards your closing costs, then the lender is effectively rolling the closing costs into the mortgage in the form of a higher return to them.  Their bet is that you don't use the prepayment option on the mortgage - either through the sale or refinance of the property in the short term, as they will show a loss on that mortgage.  And, you must qualify for the higher rate.

In most cases, you can not roll closing costs, prepaid items or points into the loan, as it will cause the loan to value to exceed the maximum for the loan program.  Now, if you are not at the maximum loan to value, then you may simply place a smaller down payment in order to reallocate your funds towards the closing costs, and accomplish the same goal.

The answer to this question is yes, you can roll your closing costs into your mortgage payment; you accomplish this goal through a no cost home loan. The first thing one must understand is "no cost loan" is a misnomer. A no cost loan is secured by the borrower when, whether knowing it or not, he or she accepts a higher interest rate than the market actually qualifies them for. By accepting a higher rate than the open market is offering, you are producing a larger profit for the lender (you are paying more interest). Because banks are in the market to make a profit, lenders incentivize the selling of higher interest rates to consumers by offering the originating agent a yield spread premium or rebate for these higher interest rates. This yield spread premium (or rebate - same thing) is a form of commission which the originating agent can keep, or credit back to you

In a true no cost loan, the originating agent would credit back part of this yield spread to cover third party charges like title and escrow charges. If enough yield spread is made all closing costs can be paid for, and essentially you have rolled the closing costs into your mortgage payment because the result will be a higher rate with a higher payment. Why? Because your closing costs are now, for all intents and purposes, part of your interest rate.

This is a smart short term solution, but a terrible long term solution. Your loan officer should be able to calculate when the breakeven point is for your particular situation. That is, when in time the no cost loan will actually begin costing you more money, then if you were to pay closing costs up front. This is an important exercise to perform and should be calculated before any final decision as to how you plan on handling closing costs is made.

It all depends upon the loan company; there are some loan companies which can allow you to roll your closing cost into your mortgage. Actually you can accomplish this goal through a no cost home loan, but you will have to discuss your case with your mortgage lender first or you should take proper finance advice from any good financial adviser.