Rolling closing costs into mortgage

Did anyone here roll their closing costs into their mortgage?

When we closed on our townhouse 3 years ago we paid our closing costs out of pocket. This time around I'm not sure we'll be able to do that. I'm curious how likely it is to get a seller's concession and roll the closing costs into the mortgage. Would I be correct in assuming that it would be a deterrent for the sellers?

Rolling closing costs into mortgage

We did. We bought a fixer upper and needed as much cash as possible.

Its not always a deterrent. Just that the house has to appraise for the price plus the closing cost. The seller usually changes the out clause in the contract to state that if the house does appraises for the selling price but not or the price plus the added closing costs you will not be able to get out of the contract.

Message edited 10/20/2014 12:12:10 PM.

Re: Rolling closing costs into mortgage

I do many transactions where the buyer rolls their closing costs into the mortgage (in whole or in part). It's called a seller's concession, but that's kind of a misnomer. The seller has to agree to it, but they are not really giving you anything.

Most sellers don't have an objection to this IF the deal isn't contingent on the seller's concession -- that can be a concern because of the appraisal factor. So if you are buying a house for $400K but want to roll in 6% for closing costs, making the selling price $424K, the seller's concern will be: What happens if the house only appraises for $410K? Will the buyer come up with the extra cash if necessary, or will the deal die and the seller has to start back at square one with the house back on the market? If the buyer CAN come up with cash but wants to try to roll in the closing costs, there's usually no issue. But if the buyer won't have the cash to cover the closing costs, a seller may balk.

It also depends on where you are looking. if it's a first time home buyer area where a lot of buyers get FHA loans with minimum down or smaller down payments and often need a seller's concession, it's more acceptable. But if you are competing with buyers who have 20% down and cash for closing, then your terms (needing a seller's concession) can hurt you.

It's important to be aware of the comps and have a sense of whether the house will appraise for the full amount. I've never had an issue (even where I thought it would be close), knock on wood! So most of the time, it works out if you and your agent are well-versed in the market.

The only other thing is that usually the transfer taxes for the extra amount attributed to closing costs will usually be paid by the buyer, not the seller (seller will usually pay transfer taxes). So if the seller is getting $400K but the buyer is rolling in an extra $10K for closing costs, the buyer will pay the transfer taxes on the $10K (it's $4 for every $1K, so it would be $40... no biggie, lol!).

Keep in mind that you can get up to 6% with an FHA loan. With a conventional loan, you can get 3% to 6% depending on your down payment.