This Article Can Closing Costs Be Added On Mortgage On Home Purchases
There are two types of costs involved when buying a home.
All loan programs require down payment with the exception of two government-backed loans:
Down Payment And Closing Costs
All real estate transactions have closing costs. This holds true for both purchase and refinances transactions. Most homebuyers can afford the monthly payment, but often have issues when coming up with down payment and closing costs. Lenders require borrowers to come up with a down payment that can be gifted. Closing costs can be covered with sellers’ concessions by the home seller If borrowers are short with covering closing costs, lenders can give a lender credit. Lender credit can be given by the mortgage lender in lieu of higher mortgage rates. There are times where sellers do not want to offer sellers concessions. This is often the case when sellers are asking top dollar for their homes. This is because they are concerned the home will not appraise out. One of the most frequently asked questions by our borrowers at Gustan Cho Associates is Can Closing Costs Be Added On Mortgage. We will cover this topic on Can Closing Costs Be Added On Mortgage on this blog.
Main Reason Why Sellers Will Not Entertain Sellers Concessions
Here is how seller’s concessions normally work.
- Say that home sellers bottom line price for their home is $100,000
- However, sellers can give up to 6% sellers concession for home buyers closing costs on FHA and USDA Loans
- VA allows 4% sellers concessions
- Fannie Mae and Freddie Mac allows 3% sellers concessions on primary residences and 2% on investment homes
- NON-QM Loans allows up to 6% of sellers concessions
- Most sellers will increase the purchase price to $106,000 and give buyers 6% sellers concessions or $6,000
- $6,000 should be plenty to cover home buyer’s closing costs
However, sellers are concerned that the home will not appraise out at $106,000. This is the main reason why some sellers refuse to give buyers sellers concessions.
Low Appraisal Issues
If a home appraisal comes in lower than the real estate purchase price, both buyers and sellers can go back to the drawing board and renegotiate the sales price.
- On the above example, if the seller were to offer a $6,000 sellers concession but the home appraised at $100,000, then the seller’s concession can be retracted
- The home buyer will then need to come up with the closing costs
Buyers can check with lenders and see if they can get lender credit in lieu of a higher mortgage rate so they can cover closing costs. Or the seller can lower the sales price and give buyer a sellers concession.
Can Closing Costs Be Added On Mortgage On Purchase Transactions
The only closing costs that can be added to the mortgage balance are VA Funding Fees on VA Loans and Upfront FHA MIP.
- All other closing costs cannot be added to the mortgage loan balance
- Gustan Cho Associates Mortgage Group will help borrowers with covering closing costs
- We often can offer lender credit in lieu of a slightly higher mortgage rate
Down payment and closing costs can be gifted as well.
Typical Closing Costs On Real Estate Transactions
All real estate transactions have closing costs. Closing costs are not a set figure. It depends on the state, county, city the property is located. It also depends on third-party charges such as title charges and government recording fees. Figures stated on the Loan Estimate are rough estimates and are often over-disclosed.
Here are examples of closing costs on a real estate transaction:
- Title charges
- Government Fees like transfer stamps
- Origination charges
- Credit Report Fees
- Processing and Underwriting Fees
- Discount Points
- Homeowners insurance
- Escrows for homeowners insurance and property taxes (Called Pre-Paids)
- Home Appraisal Fees
- Attorney’s Fees
- Upfront Mortgage Insurance Premium on FHA Loans (This can be added on mortgage loan balance)
- Home Inspection Fees (This is normally paid outside closing by home buyers)
- Any other third-party charges incurred in the closing of the home loan
Qualifying With Direct Lender With No Overlays
Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on government and conventional loans. Borrowers who need help with structuring on paying closing costs can contact us at 800-900-8569 or text us for a faster response. Or email us at email@example.com. We are available 7 days a week, evenings, weekends, and holidays.
May 1, 2021 - 4 min read