Is there such thing as a no closing cost loan? To date I honestly have not found or seen one outside of calling a close friend or relative and asking for a cash loan. Unless you keep company with millionaires this is not a great possibility. The honest truth is there will always be some type of cost associated with your loan. If purchasing these will be paid at closing. If refinancing the costs are wrapped into the loan unless you wish to pay them at closing. The bottom line is expect some form of cost.
Purchase
Here is a brief sample of a good faith estimate for a purchase (sample-gfe). This scenario is for a 30 year fixed conventional loan with a total down payment of 20% based on a $200,000 purchase price. The 800 section is typically the broker/lender associated fees. When there is no broker, origination and or processing fee associated with your loan it is considered a no closing cost loan. Note the additional fees under the 800 section. You will have prepaid interest, escrows (can waive with 20% down or greater), title fees, county and state fees and miscellanious fees such as a survey. When there is no or a very low fee in the 800 section expect to pay a higher rate which means a much greater expense monthly and over the life of your loan. Every agent is going to try and make money somewhere. If it’s not up front it will be in long term interest rate. Therefore, it is best to have an honest broker/officer who will negotiate the best rate and orignation/broker fee with you. It is honestly better to pay a little now to save a great deal later. Get 3 or more quotes and you will see what I mean.
Refinance
Closing cost for a refinance are a bit different than a purchase because they are not required to be paid out of pocket. They are typically wrapped into your loan which gives you greater flexibility. Here is a sample good faith estimate for a similar refinance (sample-refi-gfe). This is assuming your house is worth $200,000 and you owe $154,000 on your current mortgage. You will be paying off your current mortgage in hopes of gaining something. This scenario is a better interest rate. At the moment most refinances are to get cash out to consolidate debt or accomplish some goal. In either situation the cost sections are the same with the same philosophy holding true for the 800 section. Where there is no or a low cost in the 800 section expect a higher rate. At the bottom of the estimate you will find how much cash is left over to pay or receive after all designated debt has been paid including the closing cost. This new loan of $163,000 includes paying off a $154,000 mortgage and paying $8,182.67 in closing cost. The remaining balance of $817.33 will be paid to you or credited back to the loan. If you wanted cash out or more cash out you would simply need/want to increase the loan amount. This would result in a higher payment and possibly other obligations like mortgage insurance but that is another post.
All in all the truth to a no closing cost loan is false. Expect to pay and remember it is better to pay a little now and save a lot later than to be lead to believe your are paying little now and getting the best rate. I would appreciate any feed back or questions. If there are any feel free to comment.
- The Stork
