ROLL IN CLOSING COSTS OR NOT ON USDA LOAN

Takunda1 · ‎11-17-2009

So I was speaking to my Lo yesterday and he suggested that the balance of closing costs about $2500 that i would have to pay should be rolled into the loan. He said it would be best to keep my reserves for any emergency as there really would be no return on the 25oo until 11 yrs from now. By doing so it makes our monthly pymnts go up by about $20 a month. Same for the interest we would pay at closing. It looks like our date has moved up to Dec 11, so about 600 in prepaids will be required. Again he suggested we roll them into the loan, becasue he said unless we plan on living in the home for over 11 yrs there'll be no benefit to paying out of pocket.

What are your thoughts on his idea. I'm just worried that rolling too much into the loan will cause our DTI to become higher. We do have the funds to pay the prepaids and remaing closing costs if we wanted. I just need some input from here as well.

Thank you.

Anonymous · ‎11-17-2009

Rolling them also means that you start out underwater on the loan basicly. I would say pay them if you can and you still have the ability to have a little reserves. Take that $20 per month and put it into pay it as extra principle on your loan and or bulding additional reserves. In this questionable market, I would try to keep my loan amount as low as I reasonable could. Now, if you have zero reserves left when the house is done, then maybe rolling them is not that bad an idea. As far as your LO's advice about 11 years, that is BS. You start loosing money the day you start paying interest on tha amount. That loss is even more when that money could be used towards savings, reducing other high interest debt or short term debt, etc instead of paying interest for 30 years.

One other exception that might make it worth rolling it in is if you have a high interest account that this money could pay off, or a loan payment you could pay off now. Cutting out a 200 payment or a 25% interest credit card (as long as you don't charge it right back up), would help DTI and lower your monthly expenses to a point that would probably offset the interest you will pay over time on the rolled in closing costs.

Takunda1 · ‎11-17-2009

@Anonymous wrote:
Rolling them also means that you start out underwater on the loan basicly. I would say pay them if you can and you still have the ability to have a little reserves. Take that $20 per month and put it into pay it as extra principle on your loan and or bulding additional reserves. In this questionable market, I would try to keep my loan amount as low as I reasonable could. Now, if you have zero reserves left when the house is done, then maybe rolling them is not that bad an idea. As far as your LO's advice about 11 years, that is BS. You start loosing money the day you start paying interest on tha amount. That loss is even more when that money could be used towards savings, reducing other high interest debt or short term debt, etc instead of paying interest for 30 years.

One other exception that might make it worth rolling it in is if you have a high interest account that this money could pay off, or a loan payment you could pay off now. Cutting out a 200 payment or a 25% interest credit card (as long as you don't charge it right back up), would help DTI and lower your monthly expenses to a point that would probably offset the interest you will pay over time on the rolled in closing costs.

Thanks for the response Mickie08, very informative . I will consider what you said.

Anonymous · ‎11-18-2009

Are you also rolling in the 2% USDA funding fee, along with closing costs?

My funding fee plus, closing costs were about $9000. In my case, I did not want to pay interest on that $9000 for the term of the loan. Depending on how long you plan to live there, could also help you to determine how you address it. Some costs are better paid upfront if you can afford it.