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Can Borrowers “Roll Closing Costs Into The Loan?” 1,000 Five-Star Reviews!

Birthday party in the office1,000 FIVE-STAR REVIEWS!

Several years ago a mortgage bank with a very impressive software platform was recruiting us, but the firm had hundreds of horrible online reviews.

We met with them because of their software, but we also brought up the reviews because online reputations are so important in this day and age.

The owner said something like this: “oh yeah; don’t worry about those; we’re taking care of it….”

And sure enough, about a month later ALL of the negative reviews disappeared and hundreds of positive reviews magically showed up on other platforms.

They successfully sued the platforms with bad reviews and got them removed and manipulated other platforms to get the good reviews.

I thought of that story yesterday when I was told that JVM Lending now has over 1,000 authentic five-star reviews.

We always say “authentic” because we are very careful to cultivate reviews on platforms that cannot be manipulated – so we have to accept the bad with the good (we’re still waiting for the bad though 😊).

We would have it no other way because we want to make sure our reviews are always legitimate and credible.

ROLLING CLOSING COSTS INTO THE LOAN

Buyers and agents frequently ask us if we can “roll closing costs” into the loan – particularly when buyers are tight on cash.

Today was no exception when an agent asked if her buyer, with 100% USDA financing for a $94,000 purchase (in Texas, in case you’re wondering 😊), could roll his closing costs into his loan.

Our answer was unfortunately “no,” but there are other options.

REFINANCES

For refi’s, we can often easily roll either recurring or non-recurring closing costs into the loan by simply increasing the loan amount.

BUT – we can’t increase the loan amount if it pushes us over a Loan-to-Value (LTV) limit, e.g., 60%, 75% or 80%, that could either require private mortgage insurance (PMI) or a higher interest rate.

PURCHASES

For purchases, we usually cannot roll closing costs into a loan by increasing the loan amount – unless buyers simply want to put less money down and increase their LTV.

But, increasing LTVs, as mentioned above, can result in PMI or higher interest rates.

WHAT BUYERS CAN DO FOR CLOSING COST HELP

  1. Lender Credits. Lenders can increase the rate they offer in order to get more “rebate” or “yield premium” that they can then give to the buyers as a credit for closing costs. Typically, a 1/4% increase in rate will result in a credit equal to about 1% of the loan amount.
  2. Seller Credits. Sellers can also provide credits for closing costs but they are much harder to obtain in hot markets.
  3. Increasing Purchase Price So Seller Will Offer Credits. In the above scenario where the agent asked if her $94,000 buyer could roll his costs into his loan, his appraisal came in at $100,000 – or $6,000 over the contract price. It might be possible to increase the contract price to $100,000 with an additional request for a $6,000 seller credit from the seller; the seller would have no reason to say no because his “net” proceeds will remain the same. In any case, when appraisal concerns are not a factor (which is rare right now), buyers can consider artificially increasing the price to allow the seller to offer credits without any financial impact.
  4. Decreasing Down Payment. I touched on this above and am hitting it again to make sure my enumerated list is complete. Buyers can decrease their down payment amount to save money for closing costs, but that can put them into higher LTV territory, and subject them to PMI or higher interest rates.
  5. Agent/Realtor Contribution.  Agents can credit a portion of their commission for closing costs too.  As lenders, we never suggest that because we don’t want to offer other people’s money, but it is an option for agents to consider if necessary.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

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