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

Loan types that allow rolled-in closing costs

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.

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.

Boost your credit before applying for a mortgage

Many people who are preparing to buy a home don't realize just how much closing costs can be. Paying them up front means you'll have less cash on hand, but rolling them into your loan means you'll pay more over time.

One way to potentially reduce the total amount you pay is to boost your credit score before applying for a mortgage. Given the prices of many homes and the length of most mortgage terms, even a seemingly small rate savings can add up over time.

If you want to improve your credit but aren't sure where to start, Kikoff can help. Our powerful credit-building app is designed specifically for consumers with little credit, bad credit, or no credit.

It's free to sign up, and there's no hard credit check required. Take a step toward stronger credit habits with Kikoff.