Should finance closing costs, escrow reserves, or any other cash needed to close my loan at settlement?
If you’ve built up some equity in your home, when you refinance, you may be able to “cash out” some of that equity to pay off credit cards or other revolving debt, improve your home, help pay for college, or anything else you can think of. The same is true of the closing costs. If you have enough equity in your home, you may be able to roll in some or all of the costs due at closing into your loan.
Some of the “cash needed to close” as it’s sometimes called includes settlement costs and fees, prepaid interest, escrow reserves, state or local government charges, discount or origination points, 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.
Do be aware that it’s not always the case that you can borrow up to 100 percent of your home’s value. Many loan programs are based on what is called a “loan-to-value” ratio. You may qualify for a better rate and closing costs if you borrow no more than 80 percent of your home’s value. You may not qualify for the same terms if you borrow 90 percent or 100 percent of your homes value. We can help you qualify for refinance loan programs for far greater than 100 percent of your home’s value in many cases. That being said, the lower your loan-to-value ratio (that is, the less you borrow versus how much your home is worth), the better terms you’ll generally qualify for.
Also, no closing costs options are available to you. In this case you can reduce your up-front costs for refinancing your mortgage in exchange for higher monthly payments for the life of the loan. Whether, and to what extent, you can do this depends on the value of your home, the amount of your new mortgage, and what options you decide are best for you. A licensed loan officer at Global Home Finance Inc. can help you determine the right mortgage product for your unique needs.
Some people find that it’s advantageous to pay the cash needed at closing from checking, savings or money market accounts or from other assets. This is because the less you borrow on the new refinanced loan, the lower your monthly payment will be and it also lowers the total amount of interest you pay over the life of the loan. Based on our experience about 87% of our borrowers elect to roll in some part of the closing costs into a refinance loan. We’ll work with you to see if there is an advantageous refinancing program for you based on your ability and willingness to pay closing costs, escrow account reserve establishment, how long you will keep the house or mortgage, and the amount you wish to borrow. Consulting with a licensed Residential Mortgage Loan Originator who listens to your goals and needs is the best way to get the best product for you.