No Closing Cost Loans - You will have an interest rate that is slightly higher than the rate available for a mortgage loan where you pay closing costs, points, and fees.A "No-closing cost" loan might be suitable if you plan on holding the mortgage note for a short time or if the difference in payment and rate between a "no-closing cost" loan and standard fee loan is minimal.
Even when obtaining a no closing cost loan if you are escrowing for your taxes and insurance, you will still either have to bring money to close to set these up or increase your loan amount and roll this money into the loan to set up your tax and insurance escrows. Therefore, in addition to minor items such as recording fees and such that you may still need to pay for you will have to account for money to set up escrow accounts for your property taxes and homeowners insurance. Depending on the time your taxes and insurance are due this can get somewhat high or be very low.
Keep in mind that "No Closing Costs" is not exactly the same as "No Costs". Depending on the lending banks, some may require the home buyer to pay for appraisal, county recording, mortgage taxes, real estate taxes, pre-paid interests, etc. Always inquire about what specifically are the banks paying on your behalf. A detailed Good Faith Estimate provided by the lending banks can often paint a clearer picture as to what the true costs are.
No closing cost loans are advertised as a mortgage loan with no cost to you. This is only true for the upfront cost. You will be paying those cost at a much higher interest rate which generally will cost you much more over time than if you would have just taken the lower rate with closing costs.
If you are considering a no closing cost option, ask your loan officer about such topics as mortgage insurance & title fees.
Ask your mortgage professional to show you the mathematical equation for how long it would take you to "break even" with a standard loan program that you are comparing to a no closing cost loan. If you save $50 per month on a no closing cost loan that should have $5,000 worth of closing costs, it would take you over 8 years to "break even" by paying the closing costs up front.
You may actually be able to effectively get a no closing cost loan, by getting the closing costs paid for by the seller, with seller paid concessions. If the seller agrees to pay 3% closing costs, you may get the same loan with a small increase in the loan amount, but no increase in the interest rate, providing the appraisal will allow for the increase in price. If you plan to hold on to the property for any length of time, it would be well worth it to raise the price by a few thousand dollars, instead of paying a higher interest rate.
The implication in the advertising of no closing cost loans from some lenders is that the lender is simply “giving away” or not charging for the closing costs. Nothing could be further from the truth. You will pay for these costs in one form or another and an honest, competent mortgage professional such as myself can clear the smoke and mirrors from such advertising.
There is no such thing as a free mortgage. There are people involved with every mortgage transaction. Those people must be paid. If your not paying any closing costs then your paying a higher rate. Often no closing cost loans are contingent on higher rates or the seller gives a credit.
Beware of the lenders that also offer no lender fees or extremely low lender fees. No or low lender fee loans typically have all of the other fees associated with the loan and the upfront savings is very minimal.
No Closing Cost Home Equity Line of Credit - When looking for a home equity line of credit you will have many options to choose from. Most notably you will have the option of a no fee home equity line of credit. The lender will pay all fees associated with he closing of your HELOC for an increase in the margin charged over prime.
When choosing your line of credit also be sure to know what your rate will be after the initial teaser rate if there is one. Often times these lines of credits have a a short term teaser rate.
Many Equity Lines of Credit, and especially no cost home equity lines of credit, will still have an annual fee. Most of the time the annual fee is waived for the first year and then each anniversary date of when you obtained the loan you will have a annual fee assessed. This fee is usually around $50, give or take a little, but it just depends on the actual lender.
A no closing cost HELOC is always a good idea to have. It costs you no money to take out, and it gives you emergency money for any incidentals for the homme or unforeseen costs that you may have.
Often, you will have the choice of no closing costs or to pay these costs. Ask your mortgage professional to do a comparison of the two for you. Closing costs for equity loans are usually quite low and, depending upon how long you will have the loan, the lower interest rate you pay may offset the closing costs.
Many no cost HELOCs are also not available to borrowers without platinum level credit scores.
The monthly payment on a HELOC is based upon the outstanding balance, not the credit limit. Advantage - you only pay for it if you use it!
