Is A No Closing Cost Mortgage Right For You?

Is A No Closing Cost Mortgage Right For You?


Consumers today are feeling the impact of a financial crisis that only seems to be getting worse. Much of the crisis can be traced back to a series of bad decisions made in the lending industry, No Closing Cost Mortgagesparticularly when consumers were encouraged to purchase homes when they really weren’t in the position to become homeowners.

One of the worst mortgages made available at that time were “no doc” or no documentation mortgages where lenders allowed buyers to purchase homes without proof of income. These buyers were some of the first to default on their loans, while other buyers couldn’t handle adjustable rate mortgages especially when their mortgages reset to a higher rate.

Not All Of The News Is Gloomy

But, the news isn’t all gloomy especially for the person who has wisely weighed the real estate market and is ready to jump back in. While some people smell bad news others see an opportunity and are ready to seize what they can before the coming rebound kicks in.

One mortgage vehicle worth considering are various “no closing cost” mortgages. On the surface, you may think that this option is too good to be true, but some lenders are still luring home buyers with this attractive option. As the name suggests, you can buy a home without pay closing costs as these costs are picked up by the lender.

Let’s take a look at no closing cost mortgages and see if this type of loan could be right for you:

No Closing Costs, Perhaps Not — To key to a no closing cost loan is that you’re not saddled with closing costs which can make it very difficult for home buyers to meet on the day that they purchase their new home. Fees of $3000 to $5000 are possible, but your loan isn’t truly free of closing costs unless the lender picks up the title search fees; survey and recording fees; appraisal, home inspection, and warranty fees; you name it. If the bank says that they’ll cover all of these costs including your attorney fees, then you probably have the real deal. If not, find out what they won’t cover — they have to give that information to you soon after you put start doing business with them.

They Want Your Business — Why would a bank want to provide a no closing cost loan to you? That answer is easy: they want your business. In this highly competitive lending market, lending institutions know that if your credit is excellent, then you’re in a position to shop around for the best deal. Banks, mortgage companies, and other financial institutions only make money by lending it out. If you’re considered a low risk, expect to receive favorable terms including no or low closing costs.

Higher Rate Possible — Conversely, not every lender will agree to offer you a no closing cost mortgage without trading off for something else. Namely, they’ll cover your costs, but your mortgage interest rate could be slightly higher, perhaps by 1/8 of a percent. On the surface, this may not sound like a bad deal, but it could add thousands of dollars of interest charges to your mortgage, effectively canceling out your no closing cost option.

Check Up On Your Lender

Of course, when dealing with any lender today, you want to find someone who is reputable and solid. Do a google search to find out how healthy your lender is and find out from other borrowers if they’re satisfied with their mortgage provider or not. The internet has made home buying fairly transparent, but you still need to do your homework to find out if your lender can provide what they say that they will and be around for the long term.


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Categories: Home Buying

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".