Should You Finance Closing Costs? - Assuming you have enough equity in your home, you may be able to roll some of the cash due at closing into your loan. Some of the "cash needed to close" as its sometimes called includes settlement costs and fees, prepaid interest, escrow reserves, state or local government charges, or even extra funds needed to pay off your existing mortgage. Some or all of those costs can sometimes be financed as part of your new mortgage loan.
Depending on the loan to value (ltv) you can decide to either pay or include them in the purchase or refinance. On a refinance you may want to stay under a certain ltv such as 70% or 80% because if it is a cash out refinance there may be adjustments to the rate but we will discuss those options with you.
Financing closing costs on a 100% LTV loan means that you may now owe more money than what your home is worth.
Whether a borrower should finance the settlement costs into the loan depends on the homeowner's financial situation. If the homeowner has cash on hand that is not earning a comparable return, he should pay for the closing costs and enjoy a lower monthly payment. On the other hand, if the borrower is short on cash or has better investment opportunities for his funds, financing the closing costs is often a more prudent method.
There are different types of 100% loans. You can
either get 1 loan for 100% or an "80/20" loan. Speak to your mortgage
professional to see which program is best for you!
