Can closing costs be rolled into my home purchase loan?

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When you set out to buy real estate, in addition to the funds needed to cover the minimum required down payment, you will also need to set aside funds to cover closing costs. Items such as;

  • Title insurance
  • Survey
  • Searches
  • Your Attorney Fee
  • Tax & Insurance escrow deposits
  • Appraisal, flood search, etc.

That could amount to 2-3% or more of the purchase price, depending on the property tax.  With that, the question is often asked – Can we roll the cost of closing into our new mortgage?

The short answer is not really.  Lenders will not allow you to simply increase the amount of your mortgage to cover your closing expenses.

However, there is way to do so using what is commonly known as a “Seller Credit”.

Covering the cost of closing with a  Seller Credit:

A seller credit means the seller is providing you with funds at closing to cover your closing expenses. What? Why would the seller give me money at the closing?  They’re not.  Here’s how it works;

Let’s assume you are purchasing a home for $400,000 with 3% down, which is $12,000.  In addition to your down payment, let’s also assume you need $10,000 to cover closing expenses, so:  $12,000 + $10,000 = $22,000 in total needed….and you simply don’t have it.  A way around this is to build a “Seller Credit” of $10,000 into the sales price and then receive a credit back from the seller for the same amount at closing.

To illustrate;

You and the seller already agreed to a $400,000 price. Instead, make the sales price $410,000 with the seller providing you with a $10,000 “Seller Credit” at closing to help you cover your closing expenses.  The seller still nets the $400,000 they were looking for, and you essentially financed your closing costs into the new loan – thereby reducing your cash outlay from $22,000 to only $12,300 (3% down on $410,000).  A win-win.

While using a “Seller Credit” is very common, there are a few things to point out:

  1. The home must appraise at the revised sales price – in this example $410,000 instead of $400,000
  2. The credit you receive from the seller can only be used to cover actual closing costs
  3. It is important to have a real estate agent familiar with this concept on your team

Is it a good idea to use a “Seller Credit”?

The answer to that question depends on your personal preference and financial condition. Personally, I take advantage of a seller credit whenever I purchase real estate.  I simply prefer to retain my cash to use toward other things after closing, such as home upgrades or furnishings even though I’m paying a bit more in interest over time. Again, that is my personal preference.  Your lending partner should explain this and all your options in detail during your initial meeting so that you can make an informed decision.

About the Author
Joseph Farella, industry expert, award winning author, and Executive Vice President for American United Mortgage Corporation, has guided thousands of home buyers and home owners throughout the years.  Mr. Farella is also the keynote speaker for Homeownership Now, New Jersey’s longest running educational event for first-time homebuyers.  Looking for expert advice – Joe is available at 908.322.5423, or by email at
About the Author