Is Rolling Closing Costs Into A Home Loan A Good Idea?
I was just reading this great article and thought you’d benefit!
When you decide to buy a home, in addition to the cost of the home, you will also have costs that fall into two categories. One category is fees associated with the loan and its processing, the work performed by the title company and its attorney, title insurance, first year property insurance payment, and in some cases fees payable to Surveyors or other service providers involved in performing tasks to get the transaction completed.
The second broad category are Pre-Paid Items. If a home loan is involved, the Lender will generally require an escrow account be established to capture funds for payment of property taxes and the next years property taxes.
Three Reasons to Seriously Consider Rolling Closing Costs into the Loan
- If you are confident that you will not have to move or sell this home within the next five-years (ten-years would be better, but it’s really impossible to see the future)
- Paying the Closing Costs will eliminate your cash reserves. If paying these charges will wipe out your reserves, you may not qualify for the loan anyway.
- Your current living arrangement will be significantly be improved if you can financially qualify and move into this home.
Three Reason to Avoid Rolling Closing Costs Into the Loan
- If you anticipate relocating in less than five-years. There is a good chance that when you sell your home, the amount owed, and the cost of selling the house will require you to bring money to satisfy your obligation. You will in effect pay your initial closing costs when you sell the home. That hurts your ability to get a home in your next location.
- Generally, the interest rate paid will be greater when Closing Costs are rolled into the loan.
- In addition to the higher loan rate, the borrower is paying interest on the closing costs which are rolled into the loan
If one decides to roll the Closing Costs into the loan, the borrower can soften the blow. How you ask? By increasing the payments made monthly. Since most of the payments early in the life of the loan covering interest expenses, over payments are applied to the principal. Your Lender can show you how the loan balance can be reduced by consistently paying more than the minimum balance.
Deciding whether or not to roll Closing Costs into your home loan will depend on your personal financial situation. It may work under some conditions and in other cases, it’s not a good decision. Get a qualified team: a competent Loan Officer and good REALTOR® to help you explore your options. I’d like to be that REALTOR® on your team. Call me if I can help you in the greater San Antonio area. If you are looking for help in other parts of the country, I can introduce you to qualified experts anywhere in the free world. Call me
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