Closing Costs Don’t Have to Come From Your Pockets

I'm here today to talk to you about closing costs. Many times when I have new home buyers coming in to fill out an application, that is one of the first questions that I get is: do I have to come up with closing costs or can I roll them into the mortgage?

When it comes to a refinance, the answer is most of the time yes, as long as you've got the equity. On a purchase side, there's a little bit of a difference and I'll explain that. Hello everyone, this is Mia Schultz, you're a mortgage therapist.

On a purchase, you will need to bring those closing costs to closing. Let's say you've saved up enough money to put that 3% down payment on a $100,000 house.

You've got $3,000 in the bank, but you're looking at 3,000 to $4,000 in closing costs in addition to that down payment. There's several ways that you can cover those costs. You can request during the negotiation of your contract to have the seller actually give you a credit back at closing to cover those closing costs.

The way that would work is let's say you're putting an offer in on that a hundred thousand dollar home. A lot of times, people will want to go in and give them a low ball offer. And let's say you want to offer 95,000 on that a hundred thousand dollar home. Well, instead of doing that, you offer that full list price of a hundred thousand and ask them for a seller credit of $5,000 back instead.

Now you may think I'm crazy for telling you to pay more for a house than what it's listed for. But in essence, really what you're doing is financing in those closing costs. This helps you take that $5,000 rather than taking it from your pocket or your bank account. You're now essentially spreading that out over your 30 year mortgage.

So financially, that could make a lot more sense to keep that money in your pocket and put it into the loan. Let's say the seller said, No, I don't want that a hundred thousand dollars. I don't want to pay your closing costs, I'll take the a hundred thousand dollar offer, you pay your own. You can always increase your bid since now you know what that seller wanted to net on that house is a hundred thousand.

Give them $105,000 and ask for that cash back. As long as your house appraises out, that's a legal way to do that in the mortgage world. The other way that you can get your closing costs covered is to get a lender credit. The way that lender credits work is in conjunction with your interest rate.

So you've heard of people paying points. Well, the flip side of that is you pay points to get a lower rate, you take a higher rate and you get a credit back. So there's a really good mix of ways that you can structure a loan in order to get what you need out of it. And you need to work with somebody who's willing to play with those numbers with you to make that work.

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So let's say on that same a hundred thousand dollar house, you just went under contract. You need an extra thousand dollars in order to have enough cash to closing. Let's say your par interest rate is five and a half right now. If you took a 5.75 as an example, that may give you that extra little perk, that extra 1% that we can credit that back to you at closing so that you've got enough to get to the closing table. So that's option two.

The third way is to use a down payment assistance/closing costs program in your area. Many counties, cities, and states offer down payment assistance. And when you hear that word down payment assistance, yes, that can be applied towards your down payment, but it can also be applied towards closing costs.

So those would be the several ways that we can help you roll closing costs into a purchase. Thank you so much for watching my video. If this was helpful, please click down below and hit subscribe. And when you're ready to reach out, give me a call directly. I would be glad to sit down and have a mortgage therapist chat with you to answer all your questions.