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?

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.

Find and compare the best loan options for covering closing costs.

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Pros and cons of getting a personal loan for closing costs

As mentioned, there are multiple benefits and drawbacks to using a personal loan to cover closing costs. Most notably, the benefits include:

  • Quick access to the cash you need, typically instantly
  • Quick approval process for the loan
  • Fair interest rates starting at 6%
  • Long repayment period of two to seven years on average

With the above in mind, however, it’s important to recognize the downsides when wondering can you take out a personal loan for closing costs:

  • You are adding more debt on top of your mortgage
  • Personal loan interest rates can get as high as 36% if you have poor credit
  • Your debt-to-income ratio will increase

Things to consider before getting a personal loan for closing costs

For those who believe the benefits outweigh the drawbacks, keep some of the following points in mind when looking at personal loans for closing costs:

  • Getting approved for a personal loan right after applying for a mortgage can be difficult
  • You may have access to more funds than you need for your closing costs – don’t take them
  • Evaluate whether rolling closing costs into your mortgage is cheaper than taking out a personal loan
  • Reach out to friends and family first who may be willing to contribute, rather than taking on more debt

When does a personal loan for closing costs make sense?

When looking at can I get a personal loan for closing costs, you need to also consider whether it makes sense for you. The answer to can you take out a loan for closing costs is yes, but it’s not the right choice for everyone. If you can take out the loan at a fair interest rate, ideally similar to your mortgage rate, without sabotaging the negotiations over your mortgage, then it could be the right choice. Additionally, be sure you can afford the extra debt before taking it out.

Other options for covering closing costs

There are other options to consider for covering closing costs before turning to questions such as can you use a personal loan for closing costs. First and foremost, consider the following:

  • Ask friends and family if they would be willing to help.
  • See if you have funds left over after your down payment that you can use.
  • Ask for a seller credit.
  • Apply for government assistance programs.


Cash advance fees can range from 3%-5%, which makes them not a great option to consider for closing costs considering how expensive closing fees can be.

When thinking about can I take out a personal loan for closing costs, you need to consider the fact that getting a personal loan right after a mortgage will be difficult. Given the size of a mortgage, lenders may want to see a history with that amount of debt before giving you money.

Theoretically, if you have a high enough credit limit, then you could put closing costs on your credit card. However, credit card APRs tend to be far higher than interest rates on loans which makes them a worse option for closing cost payments unless you can pay the loan off quickly.