How To Finance Your Closing Costs When Buying A Home

Mortgage and Lending with AmeriFirst Financial Inc, San Diego, CA NMLS 259027

How to finance your Closing Costs when buying a home is a question I am constantly asked by Buyers who are seeking to minimize the amount of cash they "come to the table with" when determining their funds to close.  The following information will hopefully help you understand the context of these terms (while perhaps learning how to implement some creative financing along the way).


How To Finance Your Closing Costs When Buying A Home


The first step in determining how to finance your Closing Costs when buying a home is to understand some basic terminology.  The total money you will "bring in" is referred to as your funds-to-close.  For a detailed breakdown of where all the money goes when closing escrow, click here. In the spirit of keeping this article brief, I will summarize the formula for funds-to-close below:

  • Funds-to-close = Down Payment + Non-Recurring Closing Costs (NRCC's) + Recurring Costs (RC's)
  • NOTE: Your initial Earnest Money Deposit (EMD) is applied towards your remaining Funds-to-close at the conclusion of the escrow period

With this information in mind, the following underwriting guidelines will always prevail on any home purchase loan:

  • The Loan-To-Value (LTV) requirements will always be based on the LESSER of the "purchase contract price" or the "appraised value."
    • LTV is essentially a fraction that divides the base loan amount by the LESSER of the "purchase contract price" or the "appraised value"
    • An example is that a Federal Housing Administration (FHA) loan requires a maximum LTV of 96.5% (requiring a Borrower to put down a minimum of a 3.5% down payment)
    • Let's say you buy a house for $100,000, your down payment would be $3,500 and your base loan amount would be $96,500 (assuming the LESSER of the contract sales price or appraised value was $100.000)
    • If the purchase contract price was $100,000 and the home only appraised for $95,000, your maximum base loan amount would be $91,675 (96.5% of $95,000)...this would require you to make up the difference in your out-of-pocket funds-to-close

With these basic concepts in mind, now I will show you how to finance your closing costs when buying a home:

  • When it comes to your Non-Recurring Closing Costs (NRCC's) and your Recurring Costs (RC's), these cannot be financed into the loan amount.  That said, there is oftentimes a work-around to accomplish this goal.
    • Using the example from above, let's say the costs (NRCC's and RC's) you wanted to "finance into your loan amount" were $5,000
    • Let's also assume that the Seller wishes to "net" a total of $100,000 for the sale of this home
    • You could offer the Seller a $105,000 sales price with a $5,000 seller credit towards all NRCC's and RC's
      • In this example, the Seller still "nets" $100,000 ($105,000 - $5,000 = $100,000)
      • In this example, you get to avoid pulling the $5,000 out-of-pocket (because the Seller has credited this $5,000 towards your out-of-pocket expenses
    • The only way this scenario works however, is for the home to appraise at $105,000 (since the Bank will base their LTV requirements on the LESSER of the contract sales price or appraised value)

The more Buyers there are versus Sellers in any given market, the more this strategy will work (as Buyer demand for the limited inventory of homes will undoubtedly cause bidding wars to increase the sales prices...and ultimately the values of these homes).

If you are in the market to buy a new home, you might find the following articles helpful in gaining the facts necessary to make the best choices for your family:

For more information on any of these topics (and more), please feel free to contact me at 619-200-8031 or

I hope you find this information useful and now have a better understanding of how to finance your closing costs when buying a home.


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For more information on topics like this, please feel free to visit (an educational resource for Borrowers, Real Estate Agents, and Financial Professionals). Educational content provided by:


Jason E. Gordon

Branch Manager | Sr. Mortgage Loan Officer



Gordon Mortgage Group - AmeriFirst Financial Inc.


Office: 619-200-8031



11440 W. Bernardo Court, Ste. 300, San Diego, CA 92127


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Show All Comments
Jo Olson
HOMEFRONT Realty - Kettle Falls, WA
Retired - HOMEFRONT Realty @ LAKE Roosevelt

I am still amazed at all the work-arounds.  I think this one will live on forever.  You have explained it very nicely. 

Apr 22, 2012 08:30 AM #2
Jason E. Gordon
AmeriFirst Financial Inc, San Diego, CA - San Diego, CA
Sr. Loan Officer, CMPS, CDLP, CDRE, RCS-D, CDPE

Thanks for the kind words Faith & Jo...I'm always happy to help provide clarity in "creative mortgage financing" techniques to those in need!

Apr 22, 2012 08:57 AM #4
Mel Ahrens, MBA, Kelly Right Real Estate
Kelly Right Real Estate - Hood River, OR
Customized Choices for your Real Estate Needs

Very good information on financing that a lot of folks probably don't know. We were once able to finance into our mortgage the purchase of all new appliances (stove/oven, refrigerator, dishwasher, washer and dryer). We bought a 15 year old house with all original appliances that desperately needed replacement. It's amazing what can be done.


Apr 22, 2012 09:23 AM #5
Beth Paterson
Reverse Mortgages SIDAC, LLC, NMLS #1790592 - Saint Paul, MN
CRMP, NMLS #342859

Helpful information, Jason!  I specialize in reverse mortgages where we do have a HECM Home Purchase Program but it is somewhat different from the forward side.  I'm always looking at learning  so I can help my clients.  Thanks for sharing!

Apr 22, 2012 09:49 AM #6
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

Now here is the challenge we face in our current market in NH which still sees declining prices


"The only way this scenario works however, is for the home to appraise at $105,00" 


Apr 22, 2012 11:45 AM #7
Debbie Reynolds
Platinum Properties - Clarksville, TN
Your Dedicated Clarksville TN Real Estate Agent
In my area we almost always see the sellers pay soe or all of the closing costs for the buyer. Since our market is heavily VA and FHA our buyer do not have much upfront money to invest and need the seller contribution.
Apr 22, 2012 12:50 PM #8
Laurie Clark CRB Angel Realty LLC Your Monument Realtor 719-502-6572
CRB-CCSS-ASD-HBS-RSD-Denver Short Sale Agents - Monument, CO
Angel Realty, LLC

Congrats on the feature! Great information for buyers. Thanks for sharing and have a great week.

Apr 22, 2012 01:38 PM #9
BRAD NEWTON-Pittsford NY- CBR®-SFR®-SRES®-Lic. R.E. Salesperson
RE/MAX Realty Group - Pittsford, NY
Helping Rochester Families Make the Right Move !

JASON: Thanks, you explained it way better than I would.  As a matter of fact I was just covering this with a client yesterday.  Congrats on the feature!

Apr 22, 2012 02:16 PM #10
Jordon Wheeler
The Jordon Wheeler Group - Fairburn, GA
J W Group Real Estate Sales and Service

Hey Jason,

Appraisals are the tough part.  More than likely the seller ends up accepting less based on an appraisal below the purchase price.  Very good post.  Thanks and best of success to you this year!

Apr 22, 2012 02:16 PM #11
Jason E. Gordon
AmeriFirst Financial Inc, San Diego, CA - San Diego, CA
Sr. Loan Officer, CMPS, CDLP, CDRE, RCS-D, CDPE

I definitely appreciate all of the great feedback folks...thank you very much for the kind words.

Apr 22, 2012 02:25 PM #12
Thomas J. Nelson, REALTOR ® e-Pro CRS RCS-D Vets
Big Block Realty 858.232.8722 - La Jolla, CA
& Host of Postcards From Success Podcast

Great explanation my friend, that's why you're my #1 Direct lender! I'll re-post for all my clients and congratulations on the feature!

Apr 22, 2012 10:43 PM #13
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Good and relevant post....many ways to skin the cat...thank you Jason....

Apr 22, 2012 11:30 PM #14
Kevin A. Guttman-Author, ReverseMortgageSpecialist
NMLS #384936 - Colorado Springs, CO


Nice breakdown and explanation.

Hope you have a great day!

Apr 23, 2012 02:49 AM #15
Tammy Costas, CMPS
Annie Mac Home Mortgage NMLS# 338923 - Plano, TX
Mortgage Loan Originator

Great post Jason!


Apr 24, 2012 08:14 AM #16
Anna Hatridge
R Gilliam Real Estate LLC - Farmington, MO
Missouri Realtor with R Gilliam Real Estate LLC

Jason, thank you for the helpful information.  This helps explain to both buyers and sellers what closing cost are and how it works.  Coming over from Thomas J. Nelson, Realtor re-blog.  So glad he shared the post, as I missed it the first time.  

Oct 08, 2015 11:02 PM #17
Jason E. Gordon
AmeriFirst Financial Inc, San Diego, CA - San Diego, CA
Sr. Loan Officer, CMPS, CDLP, CDRE, RCS-D, CDPE

Thank you very much for the thoughtful comments Anna Hatridge , much appreciated I am always happy to share tips like these (I'll keep 'em comin')!

Oct 09, 2015 01:12 AM #18


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Jason E. Gordon

Sr. Loan Officer, CMPS, CDLP, CDRE, RCS-D, CDPE
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