Can You Roll Closing Costs Into Your Mortgage? Purchase vs Refinance, Seller Credits and Lender Credits

Rolling closing costs into a refinance is the textbook closing cost rollover. The lender adds the costs to the new loan amount, and you bring little or no cash to the table. Fannie Mae's rules for a limited cash-out refinance, the standard rate-and-term option on conventional loans, allow the proceeds to be used for "financing the payment of closing costs, points, and prepaid items," and allow cash back to the borrower of no more than the greater of 1 percent of the new loan or $2,000, according to Selling Guide B2-1.3-02.

The limit on how much you can roll closing costs into a refinance is your equity. The new, larger loan still has to fit under the lender's maximum loan-to-value ratio for that program, so a homeowner with little equity may not be able to absorb the full cost.

Take an illustrative refinance at 6.25 percent over 30 years, with and without the costs rolled in:

Choosing to roll closing costs into the loan here adds about $37 a month. Kept for the full 30 years, the $6,000 you rolled in costs roughly $7,300 in interest on top of the $6,000 itself. Sell or refinance again in five years and most of that interest never accrues. The time you expect to keep the loan decides whether this is a good deal.

On a purchase, the lender sets the maximum loan as a percentage of the lower of the price or the appraised value. Say you agree on $400,000 for a condo in Charlotte's South End and put 10 percent down. The loan is $360,000, which is already 90 percent of the price. Adding $12,000 of closing costs would push it to $372,000, or 93 percent, which is a different loan with a smaller down payment, not the same loan with costs financed.

A few purchase fees are the exception, because the program rules let them sit on top of the base loan:

• FHA upfront mortgage insurance premium. HUD Handbook 4000.1 sets the UFMIP at 175 basis points (1.75 percent) and allows it to be financed into the mortgage, with loan limits measured before the financed premium. On a $289,500 base loan that is $5,066, financed rather than paid in cash. Our sibling guide to what an FHA loan is covers the annual premium as well.
• VA funding fee. The VA says you can include the funding fee in the loan or pay it at closing, and that on a purchase loan "the funding fee is the only cost you can finance." For first use with less than 5 percent down, the fee is 2.15 percent, according to VA's funding fee page.
• USDA guaranteed loans. USDA's program fact sheet says lending extends to 100 percent of the appraised value, not the purchase price, so borrowers "potentially can include closing costs" in the financing when the appraisal leaves room. Ask an approved lender how much room yours leaves.

Outside those fees, you cannot roll closing costs into a purchase loan in any meaningful way. Everything else is covered by someone else's money or by your own.

A seller concession, which lenders call an interested party contribution, is money the seller (or another party with a stake in the sale, such as a builder or agent) pays toward your closing costs. Every major loan program caps it.

Fannie Mae's Selling Guide B3-4.1-02 adds two rules that trip up buyers. Concessions cannot exceed your actual closing costs, and any excess is treated as a sales concession and deducted from the sales price. They can pay closing costs, prepaids and HOA assessments covering up to 12 months after settlement, but never your down payment. That HOA line is worth knowing in a condo, since dues are a real monthly cost even though they sit outside the loan, as HOA fees and your mortgage and our guide to homeowners association dues explain.

Under HUD Handbook 4000.1, the FHA 6 percent covers origination fees, other closing costs, prepaid items and discount points, and also counts seller-paid rate buydowns and payment of the UFMIP. Anything over 6 percent, or over your actual costs, is treated as an inducement to purchase. The VA draws the line differently: it does not limit credits toward closing costs but caps seller concessions at 4 percent of the reasonable value on the VA Notice of Value.

There is a trade-off the table cannot show. A seller credit is often priced into the offer: ask for $12,000 toward costs and the seller may want $12,000 more on the price, and that higher price must still appraise.

A no closing cost mortgage is not free. The CFPB describes two ways lenders build one: by "charging you a higher interest rate and giving you a credit" to cover costs, or "by adding the closing costs to your loan amount." The first works on a purchase as well as a refinance, which makes lender credits the closest thing buyers have to rolling closing costs into a purchase.

Lender credits are the mirror image of discount points: you accept a higher rate in exchange for cash at closing. Our sibling guide to what points on a mortgage are runs the opposite trade. The break-even math works the same way, shown here on an illustrative $300,000 loan over 30 years:

The credit saves $6,000 now and costs about $49.59 a month. It takes roughly 121 months, a little over 10 years, for the extra payments to equal the credit. If you expect to sell or refinance before then, the credit wins; if you plan to stay 30 years, the higher rate costs about $17,850 in total. Fannie Mae excludes a lender credit derived from premium pricing from its concession limits, so on a conventional loan it does not use up the seller's allowance.

The purchase contract decides who pays what, and where it is silent, state law or local custom fills in. Costs tied to the new loan, such as origination, the appraisal, prepaid interest, the first year of insurance and the initial escrow deposit, are the buyer's because the loan is the buyer's. Other items, such as title charges and transfer taxes, are assigned differently from state to state and sometimes county to county. Fannie Mae treats fees a seller pays "in accordance with local custom" as outside its concession limits, so if custom puts a cost on the seller, paying it does not eat into the 3, 6 or 9 percent.

Two items on your estimate deserve a closer look. Prepaid homeowners insurance is the first year of the policy your lender requires, which what hazard insurance is explains. Property taxes are usually prorated between buyer and seller at closing, and our guide to condo property taxes shows why the seller's bill can understate yours. The initial escrow deposit is also where a first-year shortage often starts, as the sibling guide on why your escrow went up shows.

Agent commissions are a transaction cost rather than a loan cost, usually settled at closing out of the sale proceeds, so they never sit inside the mortgage you roll closing costs into. The 2024 settlement involving the National Association of Realtors changed the mechanics. Since August 17, 2024, agents working with buyers must sign a written agreement before touring a home, and offers of compensation to buyer agents are no longer allowed on MLS platforms, according to NAR's summary. Commissions remain negotiable, and sellers can still offer buyer agent compensation outside the MLS or offer buyer concessions such as help with closing costs.

For financing, the question is whether a seller-paid buyer agent fee counts against the concession cap. HUD's handbook says payment of real estate agent commissions "typically paid by the seller under local or state law, or local custom" is not an interested party contribution. Fannie Mae likewise keeps fees a seller pays under local custom outside its limits. If your buyer agreement makes you responsible for your agent's fee and you hope the seller will cover it, ask your loan officer in writing how that payment will be treated before you write the offer.

Your Loan Estimate shows the closing costs and any lender credits early, and the Closing Disclosure shows the final figures. Lenders must provide the Closing Disclosure three business days before closing, and the CFPB's Closing Disclosure explainer points to three places to check: lender credits on page 2, the seller credit you negotiated, and Cash to Close on page 3, which should match your most recent Loan Estimate or come with an explanation.

If you are buying with an FHA loan in a market like Orlando's Lake Nona, compare the UFMIP line with the base loan amount to confirm it was financed rather than charged in cash. If your conventional loan qualified for an appraisal waiver, the appraisal fee may be missing from the estimate, which is one less cost to cover.

Recent buyers in a building can tell you what sellers there conceded and what closing really cost; ask them on Ask a Resident before you write an offer, and compare buildings on Leevli's listings.

Two situations change the whole calculation. A building that fails conventional underwriting, covered in non-warrantable condo, can rule out the cheapest loan options. And taking over a seller's loan, explained in assumable mortgage listings, follows its own cost rules. If the choice is between a condo and a house, condo vs house covers how dues and insurance shift the budget. A loan officer can price each option side by side, including whether to roll closing costs into the loan, take a credit or pay cash, and that comparison is worth asking for before you sign the contract, while concessions are still negotiable.

Closing cost rules are national, but how much sellers concede and what the closing actually cost are local facts that only recent buyers know.

• Did the seller contribute toward your closing costs here, and did it raise the price you paid?
• How close were your final closing costs to the first Loan Estimate?
• Did the association charge transfer, estoppel or capital contribution fees at closing, and how much?
• Did your appraisal come in at the contract price, or did a seller credit cause problems?
• Which lender or loan type did buyers in this building use successfully?
• Did you take a lender credit, and would you make the same trade again?
• After closing, did your first escrow analysis or tax bill bring a surprise?