Can we roll closing costs into the loan on a purchase?

One of the most common questions in the mortgage industry is: Can closing costs be rolled into a mortgage? The short answer is no — at least, not in the way most people think. However, there are ways to avoid paying closing costs out of pocket. A seller might agree to cover them if the home is sold above market value. Another option is a lender credit, where the lender pays the closing costs in exchange for a higher interest rate.

• Fannie Mae and Freddie Mac (Conventional): You can’t roll closing costs into the loan. However, seller credits are allowed (up to 3–9% depending on your down payment), and lender credits are available in exchange for a higher interest rate.

• FHA: FHA does not allow closing costs to be rolled into the loan. You can use seller credits (up to 6% of the purchase price) or lender credits to reduce out-of-pocket expenses.

• USDA: You can roll closing costs into the loan only if the appraised value is higher than the purchase price. USDA also allows seller credits (up to 6%) and lender credits.

• VA: Closing costs can’t be rolled into the loan. However, sellers can cover all typical closing costs plus up to 4% in additional concessions. Lender credits are also allowed.

To learn more about specific mortgage requirements, be sure to speak with an experienced mortgage broker.