Roll In

Roll in summary:

• Rolling in closing costs to a mortgage loan lets you skip the upfront cash requirement.

• As part of your loan, the closing costs will accrue interest, so your total cost will go up.

• Making your loan larger to include closing costs will also increase your monthly payment.

Roll in definition and meaning

The term roll in is often used to talk about adding fees to a loan balance. To roll in fees on a loan means adding those costs (such as closing costs, origination fees, or insurance premiums) to the loan balance instead of paying them upfront. 

The trade-off is convenience now, but higher long-term cost because you’ll also pay interest on the rolled-in fees.

Key concept: Adding your closing costs and other fees to the principal loan balance, instead of paying them out of pocket at the closing.

Roll in: a comprehensive breakdown

You'll often hear people talk about rolling in closing costs as part of buying a home. This means adding your closing costs to your mortgage loan, rather than paying them at closing. 

Closing costs average around 2% to 5% of the loan amount. For a $200,000 mortgage loan, average closing costs would range from $4,000 to $10,000.

Here are the typical steps to a roll in:

• Get an estimate of closing costs. Ask the lender to estimate the closing costs. These could include an origination fee, home appraisal, home inspection, title insurance, recording fees, prepaid interest, escrow fee, and points.

• Ask if you can roll in the fees into the loan. Not every lender allows a roll-in of fees. Ask if there’s an extra charge for doing a roll-in.

• Compare alternatives. The options are typically to pay the closing costs upfront, or roll them into the loan, which increases the principal. Sometimes you can take a no-closing-cost option, where the lender gives you credits in exchange for a higher interest rate. Ask the lender for numbers for each option.

• Lender creates updated loan paperwork. If you choose to roll costs in, the lender increases the loan amount and updates the paperwork and estimate to show the financed fees and the new principal.

• Underwriting or qualification check. Because the loan amount increases, the lender will confirm you still qualify. A roll in could change eligibility or the required mortgage insurance.

• Closing and signing. At closing, the loan amount on the note equals the purchase price (or refinance balance) plus the financed closing costs. You don’t pay those fees out of pocket at closing.

Pros and cons of roll in

Whether you should roll in your closing costs will depend a lot on your personal situation. The primary benefit of rolling in closing costs is that you don't need to fork over the cash right away. 

This has two big pros:

• Improved cash flow. Every extra dollar in the bank can be important when you're making a major home purchase, especially if you're making a long-distance move.

• Easier access to homeownership. You may be able to afford a home sooner if you don't need to set aside money for closing costs.

There are some downsides, too:

• Higher loan amount. Adding your closing costs increases the size of your mortgage loan. This means higher monthly payments.

• More interest fees. You'll pay the same interest rate on the rolled-in closing costs as you do on the rest of your mortgage loan.

• Harder to get approved. If adding closing costs to your mortgage changes your loan-to-value ratio (the amount of your loan divided by the value of the home), it could make it harder to get approved for the mortgage.