Should You Roll Your Closing Costs Into Your Mortgage?

Should you pay closing costs up front?

The upside of writing a check for your closing costs when you finalize your mortgage is that you don’t have to take on more debt when you buy a home. If you roll your closing costs into your loan, you pay interest on them. Pay them up front, and you don’t, which keeps your monthly payment lower.

On the other hand, if money is tight and you’re already spending a lot of your savings on a down payment, you may be better off rolling closing costs into your loan. Also, if you’ve managed to secure a low interest rate on your mortgage, it may not hurt to just lob an extra few thousand dollars into your home loan.

How to lower your closing costs

The less you have to spend on closing costs, the smaller the check you have to write, or the less you add to your mortgage loan balance. That’s why it’s wise to keep your closing costs to a minimum. You can do so in a number of ways:

  • Shop around for offers. You may find that one lender offers lower closing costs than another.
  • Negotiate with the lender you choose. Your lender may be willing to lower certain fees (say, the application fee or origination fee) in order to gain your business.
  • See if your seller will pay some or all of your costs. In a normal housing market, it’s not uncommon for buyers to ask sellers to pick up some or all of their closing costs. Sellers are often willing to do so if they want to secure the offer they’ve received. But this strategy may not work right now, because it’s a seller’s market.
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Keep in mind that while a strong credit score may help you snag a low interest rate on your mortgage, it won’t necessarily mean you qualify for lower closing costs on that home loan.

What’s the right call for you?

No matter how much you end up spending on closing costs, think about the best way to pay those fees. If you can afford the extra money at closing, you may decide to just fork it over and be done. But if you’d rather keep more money in savings, you may want to roll closing costs into your mortgage instead. This holds especially true if you’re buying a home that needs a lot of work. You may need that money in the near term to get it into better shape.

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