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That all depends on what type of loan. Let’s look at purchase loans first. Most programs will allow sellers to contribute toward a buyer’s closing costs. But the buyer is probably going to pay a higher price for the house in order for that to occur in most cases. If a house is selling for $150,000 and closing costs [and pre-paid expenses] total an additional $5000, a loan for $155,000 is generally not going to be available with most programs. [An exception may be the VA mortgage loan with the VA funding fee financed, but that does not include other closing costs such as title, taxes, appraisal fees, etc.]. The appraisal of the property will need to support the sale price and will take into account the sales concessions i.e. the seller contribution toward buyer closing costs. The amount that a seller can contribute will vary from program to program.
On a refinance, the closing costs can be rolled into the new loan in most cases. But there are some instances when the loan limit on a transaction may mean the borrower will need to pay some or all of the closing costs ‘out of pocket’. Many advise doing this anyway, because the overall cost to the borrower will be much less over time.
One program that works very well is USDA as long as the appraisal comes in at a higher amount than the purchase price. As long as that happens, USDA will allow (up to the appraised amount + USDA 2% fee) for the additional costs. Keep in mind there are geographical restrictions to USDA, but in many areas it works brilliantly… Certainly the “raise the purchase price” trick has worked nearly 100% in the past, but with falling home prices in pretty much ever corner of the globe, it’s getting more difficult. So, that in mind, I would first see if the property is eligible for USDA financing — http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do and if so, then ask the agent to pull comps. This can and should include the listing agent before any pre-approval is sent and/or appraisal/offer is made. They all want to get the property sold and if this fails- I’m afraid not much will salvage other than gift funds to cover the closing costs and/or pre-paids.
Can closing costs be added to the loan?