Can You Take Out a Personal Loan for Closing Costs?
At a Glance
Purchasing a home is an exciting decision that can leave you feeling with a sense of accomplishment. However, with home prices higher than ever before on an average basis, the cost associated with the purchase is high. Not only do you need to be able to afford the down payment and have a strong enough financial standpoint to get a mortgage, you also need to contend with closing costs.
In this article, you’ll learn:
- What are closing costs
- Fees associated with closing costs
- Can you take out a loan for closing costs
- Pros and cons of getting a personal loan for closing costs
- Things to consider before getting a personal loan for closing costs
- When does a personal loan for closing costs make sense
- Other options for covering closing costs
- FAQs
What are closing costs?
When purchasing a home, closing costs typically include insurance items, taxes, and the professional fees for the people who were involved in the sale of the home. As you can imagine, on a home that is thousands of dollars or millions of dollars, closing costs could be quite high.
Fees associated with closing costs
On average, closing costs will be around 2%-5% of the total loan value. For example, if you took out a $1,000,000 loan, you may need to come up with $20,000-$50,000 to cover closing costs. Naturally, few people have the ability to come up with this sum of money on the spot, especially after they just made a down payment on a home.
Can you take out a loan for closing costs?
Many people often consider taking out a loan to cover the closing costs associated with a home purchase, in addition to their mortgage. There are two general ways to go about this: you can either roll your closing costs into your mortgage loan, or you can take out a separate personal loan to cover the costs of the closing fees. There are a number of benefits and drawbacks to using a personal loan for closing costs, however, that a person should consider before making this decision.
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