Closing Costs--Rolled into loan vs CC Cash Advance

[nidena]

Hey all!

I tried to find an online calculator to do the heavy lifting but none help me determine which way to go.  I've found a house to buy, list price $99,000.  Closing costs will be around $3500.  I'll be putting forth $1000 in earnest money so that will come back as a credit.

When I plug $2500 into a loan calculator for a 30 year loan, I get $1294 in interest paid over the course of those 30 years.  I'm purposely excluding all the other stuff like P&I, ins, etc here so that I'm comparing just apples.

The other option is to take a cash advance on my CC for that amount.  The interest rate is 8.4% and compounds daily on cash advances.

Closing would be, most likely, around July 6th so my first mortgage payment wouldn't be until Sept but Aug 1st is when my CC payments would go out.  I will have rent AND the mortgage for the month of Sept and Oct.  Basically, I wouldn't be able to pay off the cash advance for three or four months.  What would that result in for total interest, assuming I make $500 payments each time.


For easier quoting:
$2500 Closing Costs
Mortgage 30 year @ 3%
Cash Advance 8.4% compounded daily

[Works4me]

I am going to be blunt:

Why are you buying a house without adequate cash reserves to cover $3500 in closing costs? Also, Why are you paying both rent and a mortgage for so long? House ownership is expensive. You need to be prepared for one time set up costs in addition to ongoing maintenance and especially emergency issues.

I hate to rain on your but if you don't have enough cash savings to cover the expenses you listed above, you really cannot afford the expense of home ownership. If you do insist on doing thus, roll it into your loan so that you can use your credit card as an emergency fund. Houses seem to have the strangest ability to know when money is tightest and that is when things breakdown.

Good luck!

[Deleted]

Why not roll it into the mortgage and just make extra principal payments in a few months?   You won't be paying interest for 30 years on principal you've already paid down.  

[CCL]

How about asking the seller to help with the closing costs?

If you take out a cash advance that will show up on your credit report and may affect your ability to qualify for the mortgage.

[vonna]

I think you qualify for a VA mortgage?

A friend of mine locked in a 30 year 2.75% a couple of weeks ago.  Also, if you have a VA disability rating, the funding fee is waived.

[phil5185]

Adding $3500 to the 30 yr loans costs $14.76/month, ie $5314 over the 30 year loan.

What I do with our house (and our rental houses) is roll the $3500 into the loan. Then I put the $3500 that I didn't spend on closing costs into our 11% fund and turn it into $75,000 over the 30 year term of the loan.

[bean29]

I would not be afraid to roll the closing costs into the mortgage.  On the other hand, taking a cash advance on a credit card - that is not a good scenario.  What if your house needs repairs.  

Every time I have purchased a house, the money seems to fly out the door getting ready to move and then just after move in.  Things that you own that you thought would work in your new place don't work, you need different window coverings, you need a rug here or there, sink liner, shower curtain, paint, a new faucet maybe, bath rugs it goes on and on.  

Just a thought about buying at the low end of the market (Where I live, $99,000 would either be a house needing a lot of work, or a house in a not so good neighborhood, unless maybe you are buying a condo) - pay attention to any inspection report.  Ask the seller to fix things they note being deficient and remember inspectors are not liable for missing things, or glossing over the seriousness of things.  If things need fixing and you either can't afford to fix it, or can't do anything yourself, you are better off being a renter.

[Deleted]

I will agree that your cash reserves are a little iffy.  But I bought a house with nothing more than a 5% downpayment.  It was in good shape so it all worked out ok.

Why close by July 6?  That's really soon to get the inspection done, anything fixed that needs to be fixed, and so on.  Close in the middle of August, and you may be able to delay that first payment until Oct.  That only give you one month of double payments instead of two. 

And ask for closing costs!  If you know that closing costs will be $3500, ask for that.  My realtor said sellers prefer a $ amount towards closing costs so they know what they are agreeing to pay.  In your price range, asking for closing costs should be pretty standard since whatever you are buying is basically a starter home.  If you need the refrigerator and/or washer & dryer, ask for them.  Sellers try to make getting into that first home as easy as possible.  They know a buyer in that price range typically doesn't have a lot of cash.

I hope you are working with your own realtor.  First time home buyers make a lot of mistakes that a realtor can help you avoid.  The seller pays the realtor's commission, not you.

[Tiny]

I would not use a CC cash advance to pay closing costs.    Odds are you will also create CC debt after closing on the house (unexpected expenses).  You may be saddled with having to pay your mortgage, your CC advance debt AND additional credit card debt immediately after buying the house.   Why go into home ownership with so much debt beyond the mortgage?  And if your monthly income can handle that - why would you bother with having the EXPENSE of that extra debt?     

(basically if you don't have the closing costs on hand  maybe the house you want to buy is too expensive). 
 
If you must finance the closing costs - I would roll them into the Mortgage (and have a plan to pay down the mortgage after closing to mitigate the interest expense of $$ you rolled into the mortgage).  

I would start preparing to reserve the full mortgage payment in the Month of the Closing.   Mortgages are paid in arrears (the previous month) so you will most likely have 1 or 2 months after closing before you are required to make a mortgage payment. If you start reserving the full mortgage payment right away - you will be living in your new home AND be building up some cash.     


I get being OK with debt (Im ok with debt)  but I don't get paying top dollar for it...   I don't know why you are so eager to pay (sometimes top dollar) for money  you should already have on hand or have a lower option way to pay for it.   

I almost want to offer you a deal - since you are so very comfortable paying for the use of your own money.  Let's set up a contract deal - I will lend you money and you can pay me 6% compounded daily....   

[Tiny]

FWIW:  the mortgage lender is going to want to know how you will pay the closing costs - they will want to SEE that cash in an account before the closing if you are bringing that money to the table.   Which means you will need to do that cash advance BEFORE the closing - which the mortgage lender will see... and most likely be concerned about.   You will have to provide additional paper work (about the cash advance) to your lender.   Taking a large Cash Advance on a Credit Card in the weeks before you close - may put an end to your financing OR change the costs involved (raise them)  as you become more of a credit risk. 


10 years ago - I sort of did something like that... I had cash on hand  for the 20% down payment and closing costs on a 50K property I was buying with a mortgage.    I had 15K across various accounts (I actually had 30K cash).    I also had a 60K HELOC with a zero balance on my primary residence.     I neglected to tell the mortgage lender that I was going to make the down payment and cover the other expenses for the new property from my HELOC in the weeks before the closing date. 

When they found out I was going to INCREASE my debt load substantially before the closing - it threw a wrench into the deal.    There was some scrambling and grumbling and gnashing of teeth from every one involved in the deal.   But, the mortgage went thru and I basically used 100%  financed  money to buy a property at the height of the housing crisis.   I borrowed 12K from my HELOC at 0% for 3 months  to do the down payment and other costs on the new property.   

I had plenty of descrestionary spending money from my paycheck to cash flow all of these expenses.  The HELOC money was borrowed at 0% no fee for 6 months.  I paid down the HELOC  $500 per month.  when the 0% ended I transferred the balance to a 0% no fee CC offer.   I continued to pay it down $500 a month.    When the 0% offer was ending I couldn't find any more free money to borrow - so I paid off the balance in full.   I then continued to pay $500 per month into my savings account to build up my savings.    

During the year or so I did this I did NOT take on any other debt (0% or interest bearing) I paid all my other monthly credit card bills in full and paid no interest.    the only interest I was paying was on mortgage debt. 

I am not debt adverse - I'm just adverse to paying for that borrowed money.  I'm also adverse to paying to borrow money when I already have money or when I CAN  easily cash flow it to avoid paying interest. 

I would look at your total financial picture now and a year out after you buy the house.  I would factor in needing several thousand dollars to spend AFTER you close for expected and unexpected expense on the new house.  I plan to NOT borrow more money to pay those expenses.    

[nidena]

Yes, I qualify for and will be using a VA loan and the funding fee will be waived.  I have been saving large amounts since I sold my out-of-state house in March and paid off $23,000 in CC debt.  And, with $3600 in take home pay, monthly bills that total only $1500 including $840/mo rent, I feel quite comfortable getting a mortgage that is $650ish.  I have funds saved up just not the full $3500.

Thank you for all the input.

Edited to add...

Current debt:
Vehicle $23,951 at 4.34%
SLs $5899.15 at 4.8% (still paying these despite being on a pandemic forebearance)

[justme]

I thought you said when you sold your last house that you were going to rent for a while? Am I remembering wrong?

[Tiny]

LOL:  

When I plug $2500 into a loan calculator for a 30 year loan, I get $1294 in interest paid over the course of those 30 years. I'm purposely excluding all the other stuff like P&I, ins, etc here so that I'm comparing just apples.

You might want to also consider that you will be paying for the appliances (and carpet and any other stuff that you plan to replace or improve in the early years after you move in) that are currently in the house you buy for 30years -- as they are part of the price of the house.   I suspect you will be paying mortgage  interest on them long after they have gone to the landfill.      

I would roll the closing costs into the mortgage and then prepay the mortgage at some future point (or add consistently to the monthly payment)  rather than take on CC debt to buy a house. 

[nidena]

Jun 4, 2020 11:10:02 GMT -5 justme said:

I thought you said when you sold your last house that you were going to rent for a while? Am I remembering wrong?

I am currently renting.  The apartment lease is up at the end of Sept.

[Tiny]

Jun 4, 2020 11:18:32 GMT -5 nidena said:

Jun 4, 2020 11:10:02 GMT -5 justme said:

I thought you said when you sold your last house that you were going to rent for a while? Am I remembering wrong?

I am currently renting.  The apartment lease is up at the end of Sept.

Just an aside... can you ask the landlord to let you out of the lease early without too many fees?   Provided you can move into your new home right away (and don't need a couple of months to make it livable (I tend to buy nearly uninhabitable houses and it takes 4 to 8 weeks to make them livable).   

I let a tenant out of a lease 4 months early with a negotiated deal that was fair to both of us.   They were good tenants and they left my condo in good condition.   

[nidena]

Jun 4, 2020 11:26:33 GMT -5 Tiny said:

Jun 4, 2020 11:18:32 GMT -5 nidena said:

I am currently renting.  The apartment lease is up at the end of Sept.

Just an aside... can you ask the landlord to let you out of the lease early without too many fees?   Provided you can move into your new home right away (and don't need a couple of months to make it livable (I tend to buy nearly uninhabitable houses and it takes 4 to 8 weeks to make them livable).   

I let a tenant out of a lease 4 months early with a negotiated deal that was fair to both of us.   They were good tenants and they left my condo in good condition.   

The house is totally move-in ready.  It needs updating but it is well-maintained.  If my offer on the house is accepted, I will ask my landlord about early release.  She may be happy to see me go.  I tend to point out how old the stuff in this apartment is: HVAC and water heater are each 20+ years old.  The damn water heater sounds like Rice Krispies every time I use a faucet.

Whenever the closing is, I would prefer to have time to move my stuff since I plan to move most of the little things in my little car and that will take some time.  It won't take a month but it will take a week or two just because I pace my energy expenditures.

[Tiny]

Jun 4, 2020 11:38:08 GMT -5 nidena said:

Jun 4, 2020 11:26:33 GMT -5 Tiny said:

Just an aside... can you ask the landlord to let you out of the lease early without too many fees?   Provided you can move into your new home right away (and don't need a couple of months to make it livable (I tend to buy nearly uninhabitable houses and it takes 4 to 8 weeks to make them livable).   

I let a tenant out of a lease 4 months early with a negotiated deal that was fair to both of us.   They were good tenants and they left my condo in good condition.   

The house is totally move-in ready.  It needs updating but it is well-maintained.  If my offer on the house is accepted, I will ask my landlord about early release.  She may be happy to see me go.  I tend to point out how old the stuff in this apartment is: HVAC and water heater are each 20+ years old.  The damn water heater sounds like Rice Krispies every time I use a faucet.

Whenever the closing is, I would prefer to have time to move my stuff since I plan to move most of the little things in my little car and that will take some time.  It won't take a month but it will take a week or two just because I pace my energy expenditures.

You might want to ask to have your closing around the middle of the month depending on what your landlord says.   That way you've got the last two weeks to move - and if you end your lease early it ends on a month end.      

Alternately - if you close at the very  end of the month or the first few days of the month - you can ask the landlord if you can have rent prorated for the new month - thru the 10th or the 15th of the month.     My tenants wound up with a closing date of the 28th at the begining of a week.    Our negotiation resulted in them paying prorated rent thru the 15th of the new month.   The property manager picked up the keys on the 15th and inspected the property.   They got all their deposit money back.  they only paid the "fee" for breaking the lease.    (they were suppose to loose all their deposit money as well for breaking the lease). 

Working with your landlord might save you some rent money.  And it isn't alot of work.

[The Walk of the Penguin Mich]

My sister is moving on the 17th into a house she just bought.  She was quoted one price, and when she got her final cost earlier this week, she is expected to bring nearly 80% more in closing costs to the closing than she was initially quoted.  

I am not sure how common this is though.....

[Tiny]

Jun 4, 2020 15:58:45 GMT -5 The Walk of the Penguin Mich said:

My sister is moving on the 17th into a house she just bought.  She was quoted one price, and when she got her final cost earlier this week, she is expected to bring nearly 80% more in closing costs to the closing than she was initially quoted.  

I am not sure how common this is though.....

She should be able to look at the loan documents/closing documents to see what that 80% is going towards/paying for. 

I had to bring a lot of money to the closing (beyond my 20% down) because the lender wanted me to pay the first years property taxes and insurances up front.     

I had a bit of a panic attack that the "cost of my loan and closing" had somehow skyrocketed... but it didn't.  It was the combination of Taxes/insurances (I need flood insurance plus home owners insurance - and since it's a second home those costs were higher).  


That is a good caveat for newbie home buyers.  That how much they need to bring to the closing may not be revealed until the week or two BEFORE the closing.     That's another reason for the advice to have cash on hand above and beyond the "down payment" and/or be prepared to roll more into the loan (which can bump up one's monthly payment - which really sucks if the buyer stretched to handle the "anticipated" payment amount     

[haapai]

Jun 4, 2020 15:58:45 GMT -5 The Walk of the Penguin Mich said:

My sister is moving on the 17th into a house she just bought.  She was quoted one price, and when she got her final cost earlier this week, she is expected to bring nearly 80% more in closing costs to the closing than she was initially quoted.  

I am not sure how common this is though.....

It might be more common than you think.  The cash that you are expected to put into an escrow account isn't really a cost but a deposit.  It's also really hard to pin down since it depends on the exact month and date of the sale as well as when various property taxes are assessed on the property that you are buying.  It's absolutely astounding how reticent everyone who wants to sell you a house is about this amount and how tricky it can be to calculate. 

I'm good at math.  I have the SAT scores and the math and maths awards to prove it.  One of my parents is an accountant, the other is a computer programmer.  I was still shocked by how much I had to bring to closing to fund the escrow account.  I had calculated what the maximum amount that I would have to put in escrow could be and landed up having to pony up just about that amount. 

The amount that I had to put into an escrow account was greater than all of the other closing costs that I had anticipated and I had paid my first bit of homeowners insurance before closing. 

I have no idea how much this would have screwed me up if I hadn't been able to see at least the possibility of it happening at least three months before it happened.  My realtors, who had forty or fifty years of real estate experience between them in the same area, had nothing to do with preparing myself for this happening. 

[nidena]

Jun 4, 2020 15:30:59 GMT -5 Tiny said:

Jun 4, 2020 11:38:08 GMT -5 nidena said:

The house is totally move-in ready.  It needs updating but it is well-maintained.  If my offer on the house is accepted, I will ask my landlord about early release.  She may be happy to see me go.  I tend to point out how old the stuff in this apartment is: HVAC and water heater are each 20+ years old.  The damn water heater sounds like Rice Krispies every time I use a faucet.

Whenever the closing is, I would prefer to have time to move my stuff since I plan to move most of the little things in my little car and that will take some time.  It won't take a month but it will take a week or two just because I pace my energy expenditures.

You might want to ask to have your closing around the middle of the month depending on what your landlord says.   That way you've got the last two weeks to move - and if you end your lease early it ends on a month end.      

Alternately - if you close at the very  end of the month or the first few days of the month - you can ask the landlord if you can have rent prorated for the new month - thru the 10th or the 15th of the month.     My tenants wound up with a closing date of the 28th at the begining of a week.    Our negotiation resulted in them paying prorated rent thru the 15th of the new month.   The property manager picked up the keys on the 15th and inspected the property.   They got all their deposit money back.  they only paid the "fee" for breaking the lease.    (they were suppose to loose all their deposit money as well for breaking the lease). 

Working with your landlord might save you some rent money.  And it isn't alot of work.

If my offer is accepted, we'll close on July 10th.  My lease is up Sept 29th.  So, if there's an overlap, it'll be Sept 1st but I will definitely ask if they'd let me out early or let me have a prorate 'cause I'll be out of the apartment by the end of July.  Not super worried about the deposit.  It was pretty minimal--$99.

[tskeeter]

Jun 4, 2020 10:17:04 GMT -5 @bamafan1954 said:

I will agree that your cash reserves are a little iffy.  But I bought a house with nothing more than a 5% downpayment.  It was in good shape so it all worked out ok.

Why close by July 6?  That's really soon to get the inspection done, anything fixed that needs to be fixed, and so on.  Close in the middle of August, and you may be able to delay that first payment until Oct.  That only give you one month of double payments instead of two. 

And ask for closing costs!  If you know that closing costs will be $3500, ask for that.  My realtor said sellers prefer a $ amount towards closing costs so they know what they are agreeing to pay.  In your price range, asking for closing costs should be pretty standard since whatever you are buying is basically a starter home.  If you need the refrigerator and/or washer & dryer, ask for them.  Sellers try to make getting into that first home as easy as possible.  They know a buyer in that price range typically doesn't have a lot of cash.

I hope you are working with your own realtor.  First time home buyers make a lot of mistakes that a realtor can help you avoid.  The seller pays the realtor's commission, not you.

I don’t understand how asking the seller to fund closing costs is any different than rolling closing costs into the mortgage.  As a home seller, I have a minimum net selling price in mind for my property.  If a buyer requires me to contribute to closing costs, major upgrades such as new flooring, or the like, my selling prices goes up so that my net is still the same.  If a buyer wants upgrades before closing, I’ll even try to get some compensation for my time and effort arranging for the upgrades.  No free lunch.

[tskeeter]

Jun 4, 2020 16:54:06 GMT -5 haapai said:

Jun 4, 2020 15:58:45 GMT -5 The Walk of the Penguin Mich said:

My sister is moving on the 17th into a house she just bought.  She was quoted one price, and when she got her final cost earlier this week, she is expected to bring nearly 80% more in closing costs to the closing than she was initially quoted.  

I am not sure how common this is though.....

It might be more common than you think.  The cash that you are expected to put into an escrow account isn't really a cost but a deposit.  It's also really hard to pin down since it depends on the exact month and date of the sale as well as when various property taxes are assessed on the property that you are buying.  It's absolutely astounding how reticent everyone who wants to sell you a house is about this amount and how tricky it can be to calculate. 

I'm good at math.  I have the SAT scores and the math and maths awards to prove it.  One of my parents is an accountant, the other is a computer programmer.  I was still shocked by how much I had to bring to closing to fund the escrow account.  I had calculated what the maximum amount that I would have to put in escrow could be and landed up having to pony up just about that amount. 

The amount that I had to put into an escrow account was greater than all of the other closing costs that I had anticipated and I had paid my first bit of homeowners insurance before closing. 

I have no idea how much this would have screwed me up if I hadn't been able to see at least the possibility of it happening at least three months before it happened.  My realtors, who had forty or fifty years of real estate experience between them in the same area, had nothing to do with preparing myself for this happening. 

And the closing costs may be just the top of the iceberg.

For first time home buyers, there are a whole bunch of additional costs that they often don’t have a good handle on.  Things such as window treatments, a few pieces of furniture, decorating items, washer, dryer, refrigerator, lawn mower, snow shovel, a ladder or two, basic homeowner maintenance tools, etc. At least several hundred dollars.  Possibly several thousand dollars.

[Deleted]

Nidena isn't a first time homebuyer.  She moved from another part of the country and was renting temporarily until she sold her previous place. 

[Deleted]

Jun 7, 2020 22:21:11 GMT -5 tskeeter said:

Jun 4, 2020 10:17:04 GMT -5 @bamafan1954 said:

I will agree that your cash reserves are a little iffy.  But I bought a house with nothing more than a 5% downpayment.  It was in good shape so it all worked out ok.

Why close by July 6?  That's really soon to get the inspection done, anything fixed that needs to be fixed, and so on.  Close in the middle of August, and you may be able to delay that first payment until Oct.  That only give you one month of double payments instead of two. 

And ask for closing costs!  If you know that closing costs will be $3500, ask for that.  My realtor said sellers prefer a $ amount towards closing costs so they know what they are agreeing to pay.  In your price range, asking for closing costs should be pretty standard since whatever you are buying is basically a starter home.  If you need the refrigerator and/or washer & dryer, ask for them.  Sellers try to make getting into that first home as easy as possible.  They know a buyer in that price range typically doesn't have a lot of cash.

I hope you are working with your own realtor.  First time home buyers make a lot of mistakes that a realtor can help you avoid.  The seller pays the realtor's commission, not you.

I don’t understand how asking the seller to fund closing costs is any different than rolling closing costs into the mortgage.  As a home seller, I have a minimum net selling price in mind for my property.  If a buyer requires me to contribute to closing costs, major upgrades such as new flooring, or the like, my selling prices goes up so that my net is still the same.  If a buyer wants upgrades before closing, I’ll even try to get some compensation for my time and effort arranging for the upgrades.  No free lunch.

You are right: it is a discount like any other discount off the selling price that a buyer asks for.  Around here, though, it is typical to make an offer + closing costs for starter homes.  I have no idea why exactly.  

[nidena]

No, this is my third house in 21 years.  Went from West coast to East coast to Midwest.

I offered more than the asking price on a property that is worth, at least, $10,000 more than what I offered.  Closing cost concessions were requested and that's part of why I went higher than the asking price.  I tell you, when you come from a higher COL area, the prices in the Midwest are VERY easy on the pocketbook, as far as mortgages go.  No, I didn't have a full $3500ish saved up but I also didn't want to "swipe left" on this home.  It's perfect for me.  It's very well maintained, just needs some new (updated) carpet or other flooring down the line.  It's not worn or super old.  It's just mismatched thoughout the house.

It will be like a first house in that I'll need to get furniture--got rid of all the Delaware stuff before I moved because I had no way of knowing if it would fit in whatever new house I picked.  BUT, I can make do with what I have just like I have been doing for the past five months in this apartment.

We close July 10th.  The home inspection is Thursday of this coming week.  If it's good, I'll submit my lease termination letter before June 15th that I'll be leaving before Aug 1st.  Lease termination will be $1500 but my rent for Aug and Sept would total $1684 + their respective water bills so I'll be saving $200-$300 there.

As far as window treatments: there's blinds on all the main windows and my bedroom will be in the back so that's a plus.

The other part is, like I've been saying on the Declutter board, I won't be buying anything I don't need or that I won't use often.  I won't be in a hurry to fill this house with furniture.  I intend to love every piece I buy so that will keep me out of most "new furniture" stores.  

This is my third house and I intend for it to be my last one.  All expenses will be deliberate and intentional.

[haapai]

I'm confused.  Did that last post mean that your offer was accepted? 

[nidena]

Jun 9, 2020 9:46:10 GMT -5 haapai said:

I'm confused.  Did that last post mean that your offer was accepted? 

Yes, it was.

[haapai]

In that case, welcome to Midwestern homeownership.  It's quite a different thing than owning a house on one of the coasts.  I'm talking about the math and the numbers.  

[Peace77]

I suggest stop paying on student loans in deferment and save up your cash.

 If you need to, you can delay closing by a week or two.