During the Mortgage Loan Closing process, people have lots of questions. How much are closing costs? Can you fold the closing costs into the mortgage? When should you close on your mortgage? Are closing costs tax deductible? Why can’t I buy stuff during closing?
How Much are Mortgage Closing Costs?
The answer is that it depends. Most closing costs are a fixed cost, however the discount points total can vary with the loan amount (a certain percentage of the loan amount) as well as certain fees for Private Mortgage Insurance and title insurance.
Can You Fold the Closing Costs into the Mortgage?
Yes, you can. It’s not the most cost-efficient way to handle it, since you’ll have to pay interest on it as part of the loan. Most loans have the closing costs paid out of pocket, especially on a purchase.
Almost all loans can be priced at a slightly higher rate to get a lender credit in order to cover all or a portion of closing costs and fees.
When Should You Close on Your Mortgage?
Your closing date is very important for a variety of reasons. One, you want to not leave yourself without a place to live, so try to put your closing date on the same day as your selling date if you’re selling or move-out date if you’re renting.
Two, you want to give us enough time to actually get it closed. We are currently closing most loans in 30 days, which is very fast, considering this market, but we can only go as fast as you get us the paperwork.
If you don’t leave enough time, you may hit the closing date before the loan is approved, and then the seller can cancel for a more lucrative offer if it comes.
However, you want to make sure that it closes before the lock expires to make sure that you get the rate you want. If you wait too long, you may have to renegotiate your entire loan, or at least the rate.
Are Closing Costs Tax-Deductible?
There are three types of closing costs that are tax-deductible and they all deduct differently. There are ones that you deduct the year that they are paid, ones that you deduct over the life of the loan, and ones that add to the basis when you sell the home.
Closing Costs You Can Deduct on the Year You Paid Them
Origination fees or points paid on a purchase. To be tax-deductible in the same year they are paid, you have to meet the following four conditions.
- If the mortgage was used to buy or build your primary home.
- If the points paid were priced normally for your area.
- If you can prove that either you or the seller actually paid the points.
- If the amount is shown on your closing disclosure or settlement statement.
Points paid on a home improvement cash-out refinance. If you refinanced for home improvements, the points on the refinance might be deductible. Make sure to keep good records, though, that all of the cash was used for that purpose on your primary or secondary home.
PMI. If you have to pay PMI (Private Mortgage Insurance) and bought a house in 2019, the PMI may be deductible.
Closing Costs You Can Deduct Over the Life of the Loan
Points on a purchase. As long as you have the mortgage, you can deduct a part of the points.
Points on a home improvement refinance loan. If you used part of your loan for home improvement, additional points can be deducted.
Closing Costs that You Can Deduct When You Sell the Home
Owner’s title insurance. This protects you from any prior ownership claims against your property.
Property taxes. Did you share any of the seller’s taxes when you bought the home? Then you can write these off.
Recording fees. Third party fees for documenting the transaction for public recordkeeping.
Transfer or stamp taxes. These are different for each state but can be added to the basis.
Title fees (when you buy). These include Escrow, endorsements and title search fees.
Remember, if the seller paid these when you bought your home, you will not be able to add them to your taxes.
Why Can’t I Buy Stuff During Closing?
You don’t want to mess up your debt-to-income ratio, do you? Any large transaction during closing, even if you GET a bunch of money, can affect your closing. Just sit on your wallet and buy furniture after you close.
Call The Home Loan Expert Team at 800-991-6494. You can always apply online with our 5-Minute Loan Approval at hero.loan for your VA Loan, and www.thehomeloanexpert.com for your other mortgage needs, and we’re also open on Saturdays and will come to you to help close your loan. We work hard to make it easy on you. Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?
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