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I should pay for all closing costs or can I add it to the loan?

  • July 17 2010 - West Covina
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Answers (7)

You will have to pay it on a purchase inless you have the seller agree to pay.  On a Refi it can be added to the loan balance.
  • July 21 2010
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Consult your tax advisor about the following information:

If you are buying (always do this!):

You can have the seller (just negotiate a higher price) pay a minimum of 3%-6% (depending on the amount of your down-payment) of the sales price toward your settlement costs. Seller paid points (fees paid to lenders to buy down the interest rate) are tax-deductible for you.

Take the tax savings, you get from the immediate deduction you will get when you file next year, and simply contibute it to an IRA (which gets you an additional deduction the following year ... and contribute that amount of tax savings to the same IRA; which gets you another tax deduction, etc.).

Also, take the difference in what your lower payments are monthly (because of the rate buy-down) versus what they would have been at the higher rate; invest that to your 401k (if you have one) on a pre-tax basis (which is even a larger monthly amount than the payment difference you pay with net income) every month. (Contribute it to an IRA, and/or a Roth IRA if you don't have a 401k). The IRA contibutions are deductible which saves you more in taxes which you can contribute as well.

Figure out (at a reasonable long term rate of return ... 8%-10% on average per year, until you are age 65, and see how much all this money saved and invested accumulates to by then; compare it to the extra price you will be paying for the home to have the seller pay your rate buy-down points.

(Do you know that if you just invest the money you save in income taxes from the mortgage loan interest deduction you get, each year, that at the end of the 30-year loan term, you should be able to accumulate as much as you paid in principal and interest over the entire 30 years?)

If you are refinancing (always consider this):

Refinace using a "no-cost loan". As someone else mentioned, the rate will be a little higher. But it gives you the flexibility to refinance later (for whatever reason) to reduce rate if possible and not have to worry about what you paid for the previous loan refinance.

Also, you can use short term rate financing (5/1 ARM rates are well below 4%, and at little or no cost depending on your loan amount) to reduce payments; in order to save and invest the difference in payments, compared to present higher loan payments or higher fixed rate payments and accumulate more savings and investment capital in tax favorable programs.

Cash is King!

Look at my answer to should I finance 30 years or 15 years? (also in this forum)
  • July 19 2010
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For an FHA loan you can get options for a Streamline refinance without an appraisal and with appraisal. A total cost analysis can be done which compares the various options available to determine which will be the best fit for your needs.
  • July 18 2010
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If refinancing you should consider several factors, such as....
Loan to value, how long you intend to keep the loan and if you have the addtional cash
  • July 18 2010
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Profile picture for Montgomery Mortgage
Some lenders have no closing cost options for both refinances and purchases.  If you go with a no closing cost option, it is likely that the interest rate will be a bit higher.  In order to determine if it makes sense to go with a higher rate with no closing costs, there are several factors to consider such as how long you will be in the property (or how long you will keep the loan), the amount of the loan, Loan to value ratio, etc.  There are many variables.  If you are short on cash, then it makes sense to go with a no closing cost option. 
  • July 18 2010
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Not on a purchase, and on a refinance only if the appraisal is high enough to meet loan to value requirements.
  • July 18 2010
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Profile picture for Mills Realty

If the property appraises you can add it to the loan.  The other option is to negotiate for the seller to pay for your closing costs.

Simon Mills
Mills Realty

  • July 17 2010
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