A new home is a huge investment of time, energy, and money. Just coming up with enough money to pay for that wall of initial charges can seem impossible for some. In such cases, a no-closing-cost mortgage might be a good fit.
Are you struggling to save enough money to pay for the closing costs of a mortgage? You’re not alone. Many buyers are looking for ways to help cut down on the strain this brings, and many are finding that a no-closing-cost mortgage is an option that works for them.
If you don’t have enough money upfront for the closing costs that come with a home purchase, this will be of interest to you. Just remember that when lenders say “no-closing-cost mortgage” what they really mean is “no-upfront-closing-cost mortgage.” You will have to pay for those closing costs one way or another down the road.
What is a no-closing-cost mortgage?
Typically, homebuyers pay closing costs when the money from a mortgage is released. Some closing costs are paid by the seller, but homebuyers pay most of them. A no-closing-cost mortgage is one where the buyer doesn’t pay any closing costs at the time of the loan’s release.
What does this mean for the average homeowner? It means your closing costs are lessened at the cost of your interest rate going up or loan balance increasing.
Mortgage closing costs are a hurdle many lenders expect you to be ready for, but it might not be something you have to worry about. There is more to it than mortgage brokers just removing this part of the real estate transaction, though. For some, a higher monthly payment will just be a better option.
Mortgages and closing costs
Let’s dive more into what a no-closing-cost mortgage and closing costs are. Closing costs typically fall at a range of 3-6% of the cost of a home. While this is only a small chunk of the overall cost it’s still a hefty amount given how big the purchasing of a house is.
When working with lending services it’s good to know just what the exact costs you are dealing with are. Closing costs include multiple items, such as origination fees and discount points. These fees vary depending on the type of mortgage.
Here is a list of the most common closing costs homebuyers have to deal with. Note that there is overlap on the labels used to categorize these fees and charges.
No-closing costs and mortgage refinancing
If closing costs are stopping you from refinancing your mortgage at a lower interest rate, a no-closing-cost mortgage refinance may help. Here’s what to take into consideration when calculating if a refinance makes sense.
When considering a regular mortgage refinance, you typically have to calculate how long it will take you to recover the cost of setting up the refinance mortgage. However, if you are using a no-closing-cost mortgage to refinance, things change a little.
The first step is to determine whether the lender is adding the closing costs to the balance of the loan and calculate how much that will cost over the life of the loan. Then compare that to the savings you will get from refinancing. This article provides an in-depth look into the pros and cons of mortgage refinancing and how to calculate this.
Pros And Cons Changing Mortgage Closing Costs
Looking at it this way it might be hard to figure out if a no-closing-cost mortgage is right for you. That’s why it’s best to look at the pros and the cons and see what will work out for you given your own circumstances.
Here is a list of the benefits and the drawbacks to consider.
- A no-closing-cost mortgage can make it easier to buy or refinance a home. This can be an immense help for people who have trouble coming up with funds at the start of the process, such as first-time homeowners
- You can get a great deal on financing closing costs when you use a low interest mortgage, particularly when you take into account inflation.
- Monthly payments will be higher. Every $10,000 you roll onto your mortgage balance will increase your mortgage payments by around $50 (the exact amount will vary depending on your interest rate).
- You will pay interest on the closing costs, which will increase the overall cost of purchase.
Is a no-closing-cost mortgage right for me?
No-closing-cost mortgages can be a useful tool for some homebuyers, however, it’s not for everyone. A mortgage with zero closing costs will be best for those who either can’t afford closing costs or prefer not to pay the costs upfront.
A no-closing-cost mortgage can be a good idea for people who:
- Can qualify for low interest rates.
- Have a reliable cash flow but don´t have the savings for upfront costs.
- Plan to move in the short term.
A no-closing-cost mortgage is probably a bad idea if you:
- Can only qualify for a high interest rate.
- Have sufficient savings to easily pay the closing costs.
- Plan to keep the mortgage for the long-term
Who offers no-closing-cost mortgages?
So, you’ve decided that no-closing-cost mortgages are for you. Now what? Well, from here you need to find out who offers them. The best option here is to start comparing lenders. What is right for one person may not be the best for you.
There are plenty of mortgage options out there, you just need to compare the options available to you to find which one gives the best possible deal.
Many of the bigger name lenders offer no-closing-cost mortgages but you may be surprised by who provides the best deal. Compare multiple lenders before you make a decision. These lists of the best mortgage and mortgage refinance lenders are a good place to start.
Can I buy a house without closing costs?
Yes, some lenders will allow you to roll the closing costs into your mortgage or waive the costs in exchange for a higher interest rate or a larger loan amount.
How do you get closing costs waived?
Some closing costs are negotiable and can be removed. If the seller is having difficulties finding a buyer, you may be able to pass on some of the costs to them. However, in most cases, the only choice you have is how to pay the closing costs. You can roll them into your mortgage or pay for them with a higher interest rate.
Can you avoid paying closing costs?
You can avoid some closing costs. However, these savings will typically cost you in other ways, such as a larger mortgage balance or higher interest rates.
Does FHA help with closing costs?
Yes, FHA mortgages are designed to make it easier for buyers to afford the upfront costs. For example, FHA loans allow sellers to cover closing costs up to six percent of your purchase price, which is great if you have a motivated seller. In some cases, lenders offer closing cost assistance for FHA loans. You also may qualify for state and local government programs that help you pay for the upfront costs of a mortgage.
Can I negotiate closing costs with the lender?
Yes, you certainly can. If you are dealing with a motivated seller, they may be willing to help pay all or some of your closing costs.
- Closing costs are the expenses a homebuyer has to pay to purchase a home or refinance a mortgage.
- In a no-closing-cost mortgage, all closing costs are rolled into the balance of the loan or the borrower is charged a higher interest rate.
- Typically, homebuyers who choose a no-closing-cost mortgage will pay higher interest rates and/or have a larger balance than if they chose a regular mortgage.
- The method you choose to cover the closing costs is important when calculating whether a mortgage refinance makes sense for you.
- Mortgage fees – CFPB
- Loan costs – CFPB
- Down payment and closing cost assistance – FDIC
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