Can You Take Out a Personal Loan for Closing Costs?

Buying a house is exciting, but it can be a stressful time, too. Concerns like can I really afford the mortgage, do I want the responsibilities of home ownership, or what if I can’t afford closing costs are all common.

Closing costs can be an especially daunting expense when buying or refinancing a home. That’s why it’s crucial to understand the process and to explore how to get money for closing costs if you’re worried about the added expense of buying a home.

Closing costs are the fees charged by lenders and third parties when you purchase a home. These costs typically range from 2% to 5% of the total loan amount and can add up to thousands of dollars. Coming up with this extra cash can be a challenge for some homebuyers. If you’re wondering if you can use a personal loan to cover closing costs, here’s what you need to know.

What Are Closing Costs?

When you purchase a home, there are various fees charged by the lender and third parties involved in the transaction These closing costs may include

  • Origination fees charged by the lender to process the loan application
  • Appraisal fees to value the property
  • Credit report fees to check your creditworthiness
  • Title search and insurance fees to ensure clear title
  • Recording fees to file the deed with local authorities
  • Pest inspection fees if required
  • Homeowners insurance premiums
  • Property taxes
  • Interest charges
  • Legal fees if an attorney is used

On a $200,000 mortgage, closing costs can total $4,000 to $10,000. As a buyer, you’re typically responsible for most of these fees. Having cash on hand to cover closing costs makes for a smoother home buying process.

Can You Use a Personal Loan for Closing Costs?

A personal loan allows you to borrow money for any purpose. The loan is paid back in fixed monthly installments over a set repayment term. Since closing costs must be paid upfront when you close on the home a personal loan can provide a lump sum to cover these fees.

Most lenders will allow you to use a personal loan for closing costs. However, there are some caveats:

  • Notify your mortgage lender – Let them know you plan to take out a personal loan for closing. This extra debt could impact your debt-to-income ratio and mortgage eligibility.

  • Check your credit score – Applying for a personal loan requires a hard inquiry on your credit file. This could cause a small drop in your score which may affect mortgage rates.

  • Compare loan terms – Shop around for the best personal loan rates and fees. Look for flexible terms in case you can repay early.

  • Do the math – Make sure you can afford the added monthly loan payment along with your new mortgage payment,

As long as the personal loan doesn’t jeopardize your mortgage approval, using one for closing costs can be a viable option.

What to Look for in a Personal Loan

When using a personal loan to cover closing costs, pay attention to these key factors:

Interest Rate

The interest rate greatly impacts your total cost. Compare rates from several lenders and choose the lowest available rate for which you qualify. Good credit scores get the best rates on personal loans.

Loan Amount

Know exactly how much you need to borrow. Get a Loan Estimate from your mortgage lender with an estimate of your closing costs. Then apply for a personal loan to cover this amount.

Repayment Term

Personal loans may have terms from 1 to 7 years. A longer term lowers the monthly payment but increases interest costs over time. Choose an affordable term that fits your budget.


Watch out for origination fees and prepayment penalties which add to your costs. Some lenders charge no fees for personal loans.

Pros of Using a Personal Loan for Closing Costs

  • Fast funding – Money can be available in your account within days of approval.

  • Predictable payments – Fixed monthly installments help you budget.

  • No collateral needed – Unsecured personal loans don’t require you to pledge an asset.

  • Multiple uses – Funds from a personal loan can also cover other costs.

  • May improve rate – Paying discount points with a loan can lower your mortgage rate.

Cons of Using a Personal Loan for Closing Costs

  • Interest costs – You’ll pay interest on the loan amount, increasing your total costs.

  • Debt burden – Additional monthly loan payment makes it harder to qualify for a mortgage.

  • Credit impact – A new credit inquiry and more debt can lower your credit score.

  • Prepayment penalties – Some loans charge you if you pay off early.

  • Potential delays – Applying at the last minute could hold up closing if not approved in time.

Alternatives to Paying Closing Costs with a Personal Loan

If you don’t want to take on more debt, consider these options to cover closing costs:

  • Ask the seller to contribute towards closing costs.

  • Negotiate your real estate agent’s commission.

  • Use gifted funds from family members.

  • Apply for down payment assistance programs.

  • Save up and pay closing costs in cash.

  • Finance closing costs in the mortgage at a higher interest rate.

How to Get Approved for a Personal Loan

Here are some tips to boost your chances of qualifying for a personal loan:

  • Maintain a credit score above 670. Lenders generally approve borrowers with good to excellent credit.

  • Reduce credit card balances to lower your debt-to-income ratio.

  • Avoid applying for other new credit before your loan application. Too many inquiries can negatively impact your score.

  • Provide recent paystubs to verify your income. Having stable income will improve your eligibility.

  • Choose lenders that work with borrowers who have less-than-perfect credit histories. Online lenders may offer more flexibility than banks.

  • Apply with a co-borrower who has good credit and income to strengthen your application.

Is a Personal Loan Right for You?

A personal loan can be a quick and convenient way to pay for closing costs, allowing you to stick to your home buying timeline. However, this debt will increase your expenses. Shop for the best rates, understand the costs, and make sure you can manage the added monthly loan repayment along with your new mortgage payment. With careful planning, a personal loan for closing can be an affordable option for some homebuyers.

Calculating Your Closing Costs

Your lender will give you a Loan Estimate with projected closing costs and other details, typically within three business days after you apply for a home loan.

Before you close escrow, you’ll also receive what’s known as a Closing Disclosure. This document details the final breakdown of your closing costs. Make sure you read the Closing Disclosure – and all other loan documents – carefully and ask questions if you don’t understand anything.

What Are Closing Costs?

Closing costs are the fees associated with purchasing or refinancing a home – above the purchase price of the home – that must be paid before a loan can officially close. These fees typically include things like:

  • Lender charges
  • Title insurance
  • Appraisal fees
  • Taxes
  • Other miscellaneous expenses related to funding the transaction

The total amount of fees you pay to close on your new home can vary. Your final closing cost amount will depend on a number of factors, including how much you pay for the home, the location you’re in, and the type of loan you’re getting.

Generally, though, you should expect to pay in the range of 2-5% of the total loan amount.

Lender fees are the fees charged by banks or credit unions for processing loan applications and providing funds to purchase a home. These fees typically include origination points, appraisal fees, underwriting fees, and document preparation fees, among other things.

The exact amount you spend on lender fees will depend on the lender’s policy and any discounts they might be offering.

Property-related closing costs may apply if special assessments are made against the property prior to the sale or transfer of ownership rights. For example, prorated taxes can be due at the closing.

Other common examples of property fees can include homeowners association (HOA) dues, which are often collected upfront during the escrow period, or outstanding utility bills that may need to be settled before finalizing the transaction.

Can a Loan be used to pay for Closing Costs?


Can you use a personal loan to close on a house?

Using a personal loan for closing costs on a home purchase is permissible, but not for down payments. These closing costs encompass various fees such as origination charges, taxes, and insurance. Borrowers must disclose the loan to mortgage lenders and account for it in their debt-to-income ratio.

Can you pull out a loan for closing costs?

Can closing costs be included in a mortgage? Yes, closing costs can be included in a mortgage loan. This is also known as “rolling” closing costs into a loan. The downside of rolling closing costs into a loan is that you will be paying interest on the closing fees, so you’ll pay more for your mortgage in the long run.

Can you take out a personal loan for a down payment?

Personal Loan as a Down Payment Depending on the actual dollar amount, you might be able to take out a personal loan to cover it, but that option isn’t without some downsides. Most banks will not accept a personal loan as a down payment on a house because it indicates that you might not be the most reliable borrower.

Can I borrow money from a friend for closing costs?

FHA: Acceptable donors include Family, Fiancé or Domestic Partner. Friends are also allowed; however your relationship must be clearly defined relationship. USDA: Contact a mortgage expert for more info.

Can you get a personal loan for mortgage closing costs?

Borrowers with good credit may get a personal loan for mortgage closing costs. Bringing personal loan money to the closing table can help you finalize your home purchase. Some lenders, however, may deny your mortgage loan application during the closing process if you borrow large sums of money to cover your closing expenses.

Can I borrow money for closing costs?

This expense can be paid out of pocket via cash or a personal loan or wrapped up into the mortgage. If it’s included in the mortgage, you’ll end up paying interest on this amount over the life of the loan. If you don’t have the cash to pay for closing costs, you may be wondering if you can borrow the money.

How do lenders make up for no closing costs?

Generally, lenders make up for “no closing costs” by adding these fees to the total loan amount or charging a higher interest rate. Some lenders may offer you lender credits to cover some or all of your closing costs, but once again, accepting these lender credits typically raises your interest rate or increases your loan amount.

How much is closing cost on a home loan?

Closing costs on a home average 2–6% of the total loan amount. This expense can be paid out of pocket via cash or a personal loan or wrapped up into the mortgage. If it’s included in the mortgage, you’ll end up paying interest on this amount over the life of the loan.

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