The Quick Read: Usually not on a purchase, and usually yes on a refinance. On a purchase, closing costs are part of what you pay at settlement, and the loan stays capped by the leverage limit on the lower of the sales price or appraised value. On a refinance of the home you live in, the agencies allow closing costs, points and prepaid items to be built into the new balance, as long as the total stays inside the loan-to-value limit. On a purchase, the real tools are seller contributions, lender credits and gift funds, and each has its own limits.
Why Purchase and Refinance Get Different Answers
The difference comes down to the value ceiling. A purchase loan is sized off the lower of the sales price or the appraised value. The leverage cap applies to that number. If you put 3% down on a 97% loan, there is no extra room above 97% to carry closing costs. The loan is already at the limit. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Conventional payment estimate
The starting figures are an example price at the first-time buyer’s minimum down payment. Replace them with yours.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a conventional loan quote.
Estimate seeded at the low end of Fannie Mae’s published range (0.58%–1.86% a year); the insurer prices the actual premium on the score and the leverage. Applies only above 80% loan-to-value.
Illustrative starting assumptions: a $350,000 price, the first-time buyer’s minimum down payment, a thirty-year term at the current Freddie Mac benchmark, mortgage insurance at the low end of Fannie Mae’s published range, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a conventional loan quote; your rate is set by the lender at lock. The mortgage insurance figure is an editable estimate seeded from Fannie Mae’s published typical range, not a premium quote; the insurer prices the actual premium, and the cancellation month assumes scheduled payments with no extra principal and no change in value. Taxes, insurance and dues are editable estimates; closing costs are not included. Conforming loan limits apply by county. Licensed in sixteen states for consumer mortgages.
A refinance works differently. The new loan pays off the old one, and the program allows the costs of doing that to ride along, provided the final balance still fits under the cap for that transaction type. Fannie Mae’s limited cash-out refinance rules say the new loan can include financing the payment of closing costs, points and prepaid items.
Closing costs are simply part of the cash you bring or the credits you negotiate. Some online pages blur this and say you can add costs to the loan on a purchase. Those pages are not describing how the conventional programs work on a home purchase. Treat that as a file-level reality: the loan amount is the price minus the down payment, and the leverage limit holds.
“Financing” closing costs is not a separate product. It shows up in one of three forms:
- A larger loan balance (refinance).
- A trade of interest cost for upfront credit (lender credit).
- A seller contribution (purchase).
Each costs the household something different.
What the Purchase Envelope Looks Like
Across the wholesale conventional programs, the leverage limits on a principal residence are:
- 97% LTV (3% down) on a one-unit home with a fixed rate when at least one borrower is a first-time buyer, meaning no ownership interest in a residence in the previous three years.
- 95% LTV (5% down) for other one-unit principal residence purchases.
- Two- to four-unit principal residences go to 95%.
- Second homes go to 90%. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Mortgage insurance is required above 80% LTV. You can request cancellation at 80% of the original value with good payment history, no subordinate liens and no decline in value. The servicer must end it automatically at 78%. Published typical annual premiums run 0.58% to 1.86% of the balance. That’s a range, not a quote. All of this is subject to lender guidelines and full file review.
So a buyer at 97% has no leverage room left. A buyer at 90% has room in theory, but the loan is still sized from the price and down payment, not from the costs. Putting more down is the way to lower the balance. Adding costs to it is not an option on the purchase side.
The Purchase Routes That Actually Work
If you’re buying and short on cash to close, these are the real options. Here’s how they compare.
| Route | Available on purchase? | Who bears the cost | Main limit |
|---|---|---|---|
| Seller contribution | Yes | Seller (often through price) | Capped by LTV tier |
| Lender credit | Yes | Borrower, through the interest cost | Cannot exceed borrower costs |
| Gift funds | Yes, per program rules | Donor | Documentation required |
| Financing into the loan | No separate line | n/a | Loan capped by LTV |
Seller contributions
Seller contributions are formally called interested-party contributions. Fannie Mae’s guide allows financing concessions toward borrower closing costs, including prepaids, or up to 12 months of post-settlement HOA assessments. The caps are calculated on the lower of the sales price or appraised value, not the loan amount.
For a principal residence or second home, the limits are:
| LTV/CLTV | Maximum contribution |
|---|---|
| Above 90% | 3% |
| 75.01% to 90% | 6% |
| 75% or less | 9% |
An investment property is capped at 2% in every band. Freddie Mac’s Seller/Servicer Guide uses the same tiers.
Two points trip up files:
1. The credit can’t exceed your actual closing costs. Any excess is treated as a sales concession.
2. Excess is deducted from the price. The LTV is then recalculated on the reduced price. That can push a borrower over the leverage limit and force more cash down.
Customary seller-paid costs are different. Typical fees paid by a seller under local custom are not subject to the maximum financing concessions. A Fannie Mae selling notice also clarified that a seller-paid buyer-agent commission paid under local custom does not count toward the contribution limits.
Seller credits cannot fund your down payment. The same guide says interested-party funds cannot be used for the down payment, financial reserves, or minimum borrower contribution. That is the misconception that causes the most kickbacks. A buyer who needs the 3% or 5% down has to source it from their own funds or an eligible gift, not from the seller. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Lender credits
A lender credit lowers your cash to close, and you pay for it in the interest cost over time. The CFPB explains that with a lender credit you pay less up front but more over time because the interest rate is higher. The more credit you take, the higher the rate goes. On the Loan Estimate and Closing Disclosure, lender credits appear on page 2, Section J.
No cost disappears. It moves from closing day into the loan.
How a Refinance Rolls Costs In
On a refinance of the home you live in, the mechanics are straightforward. The new loan pays off the existing first mortgage and the costs. The new balance has to fit under the leverage cap for that transaction.
Freddie Mac says that on its no-cash-out refinance, all related closing costs, financing costs and prepaids and escrows may be rolled into the new loan amount. It says the same for its cash-out refinance. Fannie Mae lists financing closing costs, points and prepaid items as an acceptable use of a cash-out refinance as well.
Terminology differs. A refinance that only pays off the first mortgage and costs is “limited cash-out” at Fannie Mae and “no cash-out” at Freddie Mac. Same idea, different label.
Across the wholesale programs, the limits on a principal residence look like this:
- Rate-and-term (limited cash-out): 95% LTV on a one-unit principal residence, and up to 97% where the existing loan is agency-owned and the first-time-buyer program allows. Mortgage insurance applies above 80%.
- Cash-out: 80% LTV on a one-unit principal residence, and 75% on two- to four-unit principal residences, second homes and investment property. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
The Fannie Mae Eligibility Matrix is where agency maximums are published, and its notes list exceptions. Defer to the current version.
One more limit. On a limited cash-out refinance, cash back to the borrower in aggregate cannot exceed the greater of 1% of the new loan amount or $2,000. Older articles still cite a “lesser of 2% or $2,000” rule. That’s outdated. The point of the transaction is to pay off the old loan and the costs, not to hand the borrower leftover cash.
What Decides Whether the Costs Fit
On a refinance, two things decide it.
1. The LTV after the costs are added. If the old balance plus costs lands under the cap, the costs fit. If it lands over, they don’t, and the borrower pays the difference in cash or the deal works to a different structure.
2. The appraised value. A low appraisal shrinks the room. Rolling costs raises the balance, which raises LTV, and a value that comes in light can wipe out the margin.
Credit score, total ratios and occupancy still apply. The wholesale conventional programs start at a 620 decision score, and the automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans run tighter, at 36% or 45%, with the reserve and score factors in the Eligibility Matrix.
A larger balance also affects the file in two ways:
- It can move the loan into a higher mortgage-insurance tier when the LTV crosses 80% or another band.
- It raises the monthly obligation, which feeds the total ratio.
A borrower sitting near the ratio ceiling can lose the ability to roll costs simply because the extra balance tips the number over.
Edge Cases That Change the Answer
Delayed financing. A borrower who bought with cash can do a cash-out refinance soon after. The new loan is capped at the documented initial investment plus the financing of closing costs, prepaid fees and points, per Fannie Mae’s cash-out rules. Cash-out seasoning otherwise requires that the first mortgage being paid off be at least 12 months old, note date to note date, and that the borrower be on title for 6 months.
High-LTV refinance. Fannie Mae has a high-LTV refinance option with its own cap on financed costs and a small cash-back allowance. That guidance has been revised over time, so confirm current terms before relying on any figure.
Occupancy. Second homes and investment property carry lower leverage caps, so there is less room to roll costs in. That’s one sentence on the topic, and it’s the whole story: occupancy sets the leverage, and the leverage sets the room.
Taxes. Delinquent real estate taxes can be included in some refinances under conditions. Taxes more than 60 days delinquent are excluded from that allowance.
The Worked Comparison
Take a borrower buying a home with 5% down. The loan is 95% of the price. There is no room above that for costs. To cut cash to close, the borrower negotiates a seller contribution. At a 95% LTV that falls in the “above 90%” tier, so the cap is 3% of the lower of price or appraised value. If the seller offers more than the borrower’s actual costs, the excess comes off the price and the LTV is recalculated. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Now take a homeowner refinancing at 70% LTV. The costs and prepaids can ride into the new balance, and the result still sits well under the cap. Cash to close drops to near zero. The borrower pays for that in a bigger balance and more total interest. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Same goal, different mechanism, different cost.
Is Rolling Costs In Worth It? A Break-Even View
Rolling costs into a refinance does not avoid paying them. It means you don’t pay them on closing day. The cost spreads across the life of the loan, with interest on top.
The time horizon decides the answer:
- Short stay. A borrower who expects to sell or refinance within a few years usually pays less in total by financing the costs or taking a credit.
- Long stay. A borrower who stays for the full term usually pays more in total by financing.
Ask your loan officer to compare the options side by side on the Loan Estimate. Look at cash to close, the loan balance, the interest cost and any mortgage insurance for each version.
Decision Checklist
Financing costs into a refinance may make sense if:
- You are refinancing the home you live in.
- The appraised value leaves room under the LTV cap.
- You expect to move or refinance again within a few years.
- Cash on hand is better kept as a reserve.
Consider another route if:
- You are buying, since the loan is capped and costs are paid at settlement.
- The added balance would cross 80% and trigger mortgage insurance.
- You plan to stay long term and can pay the costs from savings.
- Your total ratio is already near the ceiling.
How to Ask for It
1. Say which transaction you are doing. Purchase or refinance. The answer changes everything downstream.
2. Ask for versions side by side. Request the Loan Estimate with costs paid in cash, with a seller contribution, and with a lender credit, or with costs rolled in on a refinance.
3. Check the LTV on each version. Ask what the leverage is after costs and whether it crosses 80%.
4. Read page 2 of the Loan Estimate. Lender credits appear in Section J as a negative number. The CFPB’s closing disclosure explainer shows how cash to close and seller credits appear.
5. Confirm on the Closing Disclosure. The final numbers should match what you agreed to.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Common Misconceptions
- “Financing closing costs means no closing costs.” The costs are still owed. They move into the balance or the interest cost.
- “A no-closing-cost loan is free.” The costs are built into a higher rate or a larger balance.
- “Seller credits can cover my down payment.” They can’t.
- “A seller can give any amount.” The cap depends on LTV and occupancy.
- “I get leftover credit as cash.” Financing concessions cannot exceed your actual closing costs.
- “Fannie Mae and Freddie Mac rules are identical.” They are close, but terminology and some programs differ.
Key Terms Defined
Financing concession: A seller or other party’s payment toward the borrower’s closing costs, prepaids or HOA dues, limited by LTV and occupancy.
Interested-party contribution: Money from someone with a stake in the sale, such as the seller or builder, which the agencies cap.
Lender credit: A credit that lowers cash to close in exchange for a higher interest cost over time.
Limited cash-out refinance: A refinance that pays off the first mortgage and costs, with only incidental cash back.
Loan-to-value (LTV): The loan balance divided by the lower of price or appraised value.
Sales concession: Seller credit above the allowed limit, which the lender subtracts from the price.
Frequently Asked Questions
Can I add closing costs to my loan balance when I buy a home?
Not as a separate item. The conventional loan is sized from the price and down payment, and the leverage limit applies to the lower of price or appraised value. Seller contributions, lender credits and gift funds are the usual ways to reduce cash to close. All are subject to lender guidelines.
Can I roll closing costs into a conventional refinance?
Usually, yes, on the home you live in. Both Fannie Mae and Freddie Mac allow closing costs, points and prepaid items to be included in the new loan. The final balance has to stay under the LTV cap for the transaction type, and a low appraisal can remove the room.
How much can a seller pay toward my closing costs?
It depends on your down payment and occupancy. On a principal residence or second home the cap is 3% above 90% LTV, 6% from 75.01% to 90%, and 9% at 75% or less. Investment property is capped at 2%. The credit can’t exceed your actual costs. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Will a lender credit lower my total cost?
No. A lender credit lowers what you pay at closing, but the interest cost goes up over time. The more credit you take, the higher the interest cost. It can still make sense if you plan to sell or refinance in a few years.
Does rolling costs into a refinance trigger mortgage insurance?
It can, because a larger balance raises LTV, and mortgage insurance is required above 80%. A new appraisal that supports a higher value can lower the LTV and may remove the need for it.
Next Step
If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file. The brokerage arranges conventional loan programs through wholesale lenders in the states where it is licensed for consumer lending. For a side-by-side look at the mechanics, see Lendmire’s piece Can You Roll Closing Costs Into a Conventional Loan?. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance
2. Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions
3. Freddie Mac Seller/Servicer Guide 5501.6
4. CFPB: How Should I Use Lender Credits and Points Also Called Discount Points
5. Freddie Mac No Cash-Out Refinance product page
6. Fannie Mae Eligibility Matrix
7. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance
8. CFPB’s closing disclosure explainer
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Get a Pre-Approval for a Conventional Loan · How to Document a Job Change on a Move-Up Conventional Loan · How to Remove PMI on a Conventional Loan as a Move-Up Buyer
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.