Should you consider financing closing costs, escrow reserves, or other cash needed at closing?

If you are considering refinancing your home, you may also want to include the costs of refinancing and escrow reserves in the balance of the loan.

Whether or not that makes sense for you depends to some extent on your “loan to value” ratio. The loan to value (LTV) ratio is simply the amount of your loan divided by the value of your home.

Keep in mind, the higher the LTV, the higher the interest rate. For instance if your loan amount, including closing costs and escrows goes over 90% of the value of your home, then the interest rate for which you qualify will be higher than one that you would qualify for with a LTV of 80%. In some cases you may not qualify for a higher LTV, depending upon credit scores, type of property, debt to income ratios, etc.

So, you may be able to reduce your out of pocket costs and finance them as part of the mortgage, but you should consult with a loan counselor. They can help you assess whether the larger payment amount and higher interest rate are worthwhile for your particular situation. Depending on how long you’ve had your home and your mortgage, current interest rates may allow you to finance your closing costs, and even take out additional cash with a new monthly payment less than your existing payment. We can help you evaluate you all of your options!