Can Closing Costs Be Rolled Into a Mortgage?

With the price of housing as high as it is, many hopeful homebuyers struggle to save enough to cover a down payment. However, buyers are usually responsible for closing costs, as well, which may be 2%–6% of the purchase price.

Before purchasing a home, you might naturally wonder: Is it possible to roll closing costs into mortgage financing? Here’s a closer look.

Can you roll closing costs into mortgage financing?

In many cases, you can roll closing costs into your mortgage, but it depends on your loan type. The following types of loans often let borrowers roll closing costs into mortgage financing:

• Federal Housing Administration (FHA) loans
• U.S. Department of Veterans Affairs (VA) loans
• U.S. Department of Agriculture (USDA) loans (in certain circumstances)
• Some conventional loans

Not all conventional lenders will let you roll closing costs into your mortgage. You’re more likely to be able to do this if you’re refinancing or you’ve negotiated specific seller concessions.

Can you roll all of your closing costs into a mortgage?

The term “closing costs” covers a wide range of fees associated with buying a home. In many cases, you won’t be able to incorporate every single one into your mortgage.

That said, here are some of the closing costs that can often (but not always) be added to a mortgage:

• Appraisal Fee: What you pay to have the home professionally appraised
• Loan Origination Fee: What the lender charges to process your loan
• Inspection Fee: What you pay for a professional inspection
• Credit Report Fee: What the lender pays for a copy of your credit report
• Title Fees/Title Insurance: Fees for insurance that protects both borrower and lender from ownership disputes
• Mortgage Insurance Premium: What you pay for mortgage insurance coverage
• Recording Fee: The cost of recording a new deed
• Attorney Fees: Any legal fees you’ve paid

And here are some closing costs that usually can’t be rolled into a mortgage:

• Escrow fees
• Property taxes
• Homeowners’ insurance
• Prepaid mortgage interest
• Homeowners’ association (HOA) fees

Never assume that a given fee can (or can’t) be made part of your mortgage. When in doubt, ask your lender.

Ways to roll closing costs into a mortgage

When most people talk about rolling closing costs into a mortgage, they’re talking about adding the fees to the loan balance. However, that’s not the only way you can avoid paying closing costs up front.

Adding costs to your loan balance

If your lender allows you to do this, it’s the simplest way forward. However, you should consider the downsides before proceeding. When you add closing costs to the loan, you end up being responsible for interest on them, which means you’ll pay more over time.

Lender credits in exchange for a higher rate

With lender credits, your lender covers your closing costs. In return, you pay a slightly higher rate over the length of your mortgage. Before you agree to lender credits, use a mortgage calculator to see how much extra you’ll end up paying in the long term.

It’s important to note that while you can use lender credits to cover your closing costs, you may not use them to cover your down payment.

Seller concessions

When you negotiate seller concessions, the seller agrees to pay some or all of your closing costs. The funds come from the purchase price of the home, not directly out of the seller’s pocket. As a result, you generally must agree to a slightly higher mortgage balance.

This option is a little more complicated, but it may be worth exploring if you can’t roll your closing costs into your mortgage any other way.

Loan types that allow rolled-in closing costs

Wondering what types of mortgages will let you roll closing costs into your loan balance? Here’s a look at some of the most common options.

FHA loans

FHA loans are backed by the Federal Housing Administration (FHA) and are intended for people with low to moderate incomes. Notably, you may be able to qualify for an FHA loan with a lower credit score than most other mortgage types require.

FHA loans will usually let you roll closing costs into your loan balance. However, you won’t be allowed to do this if you have an FHA streamline refinance.

VA loans

The U.S. Department of Veterans Affairs (VA) offers VA loans to active-duty service members, veterans, and some surviving spouses. Like FHA loans, they have more flexible credit requirements than conventional mortgages, and they also allow zero down payments.

Technically, the only closing cost that can be rolled into your loan balance is the VA Funding Fee. However, many borrowers successfully negotiate seller concessions.

USDA loans

USDA loans don’t let borrowers roll closing costs into their mortgage by default. However, you may do so if the appraised value of the home you’re buying is greater than the purchase price.

Conventional loans

Some conventional lenders may let you incorporate closing costs into your loan balance, but not all of them do. They’re more likely to allow it if you’re refinancing or your home’s appraisal value is higher than the sale price.

However, some lenders offer an alternative loan option with no closing costs. With this loan, you pay a higher interest rate, but the lender pays all of your closing costs.

Conclusion

You can often roll closing costs into a mortgage, though it depends on your loan type and which specific fees you're talking about.

FHA, VA, USDA, and some conventional loans allow it under certain conditions, while escrow fees, property taxes, and prepaid interest generally can't be included. Lender credits and seller concessions are two alternate paths if your loan doesn't permit rolling costs directly into the balance.

Either way you'll pay for those costs over time, which is why the rate you qualify for matters so much.

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