Buying a new home is probably the single largest investment you will ever make. The costs of the mortgage in addition to the closing costs, broker costs and other related fees can add up quickly. In some cases, you may be able to roll certain costs of the mortgage into the mortgage loan itself rather than having to pay the fees out of pocket at the closing table.
Some lenders will allow you to roll in the closing costs of the loan providing there is enough equity in the house. If the appraisal shows the home value to be $150,000 but the purchase price of the home is only $130,000, you may be able to finance the closing costs of the loan right into the mortgage. If the lender is willing to sign off on the deal, you could finance as much as 100 percent of the total value of the home. That would leave an extra $20,000 available to pay for closing costs and fees.
If you are working with an FHA approved lender or a bank which offers construction loans for houses, you may be able to roll in the costs of home improvement and repairs. The home will be assessed as is, and an estimate will be provided on the cost of all necessary repairs and upgrades as well as the approximate value which the house will command following the completion of the renovations. The mortgage may be written up to a certain dollar amount exceeding the purchase price with a refund granted back to you to complete repairs. Alternatively, you may be granted a temporary construction loan with funds dispersed according to the lender's discretion for work to the property. Following work completion, the remaining balance of the home's purchase price will be converted to a traditional mortgage.
Seller concessions may also be rolled into the cost of a mortgage. When you make an offer to purchase a home, you can request that the seller make certain concessions. These concessions might include contributing to closing costs or providing funds to replace flooring, appliances or other home improvement projects. If the sale price of the home is $100,000 and the cost of the requested seller concession is $8,000 for instance, you would submit a contract offer to purchase the house at a cost of $108,000 with a concession written into the purchase agreement that you will be credited $8,000 by the seller at the closing table. Your requested mortgage amount would then total $108,000 minus your down payment.
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- Consumer Financial Protection Bureau. "What Fees or Charges Are Paid When Closing on a Mortgage and Who Pays Them?" Accessed April 5, 2020.
- Department of Housing and Urban Development. "Let FHA Loans Help You." Accessed April 5, 2020.
- Department of Veterans Affairs. "Ten Things Most Veterans Don't Know About V.A. Loans." Accessed April 5, 2020.
- Consumer Action. "You Can Buy a Home," Page 1. Accessed April 5, 2020.
- Consumer Financial Protection Bureau. "Is There Such a Thing as a No-Cost or No-Closing Loan or Refinancing? Accessed April 5, 2020.
- U.S. News and World Report. "How Do Seller Concessions Work?" Accessed April 5, 2020.
- Nolo. "Escrow and Your Role as Home Seller." Accessed April 5, 2020.
Sara Melone is a mother of three and a graduate of UNH. With prior careers in insurance and finance, photography, as well as certifications in fitness and nutrition, Melone draws directly from past experience and varying interests. She contributes with equal passion to birth journals, investment blogs, and self-help websites.