December 28th, 2018 11:43 AM by Jackie A. Graves, President
Sounds attractive, doesn’t it?
Getting a home loan and not having to pay those pesky closing costs? When you
first embark on getting a home loan and talk to your loan officer, it’s
information gathering time. You want to know how much you can qualify for, what
your monthly payments will be and how much down payment you’ll need. You can be
you’ll also ask about closing costs. Your loan officer can prepare a Loan
Estimate for you.
This loan estimate is a
three-page form that provides important information about a potential mortgage
such as a note rate, the annual percentage rate, how much interest you would
pay over the life of the loan and other data points. The loan estimate will
also itemize potential closing costs associated with getting a mortgage. But
where’s the No Closing Cost mortgage?
The truth is there really is no
such thing. There are costs associated with all mortgages, it’s just a matter
of how and who pays for them. Sellers can pay for some or all of your closing
costs on most loans and lenders can also help out with a lender credit. It’s
with this credit that the phrase “no closing cost” comes into play.
Here’s how it works. You know
that with each loan program lenders provide multiple rates from which to
choose. If you want a lower rate you’ll be asked to pay discount points. A
discount point, or simply a “point” is expressed as a percentage of the loan
amount and lowers, or discounts, the note rate on your mortgage. As an example,
consider a 30 year fixed rate quote of 4.25 percent with no points at all. But
you might want to pay one point on a $200,000 loan to lower your rate to 3.75
percent. One point equals $2,000 and is in essence a form of prepaid interest
to the lender.
Conversely, you might be able
to choose a 4.50 percent rate and suddenly there’s a lender credit available to
you for $2,000. This credit will be applied toward your closing costs when you
attend your closing. This credit has multiple variables but primarily the main
consideration is the adjustment in rate and the amount of your closing costs.
On a $50,000 mortgage for instance, one point is just $500 which won’t make
much of a dent. But a $300,000 mortgage and a $3,000 credit can. So much so
that the lender credit pays for all of your closing costs.
Note here there are two types
of costs, recurring and non-recurring. Non-recurring costs are those you’ll see
at your closing and never again. Costs such as lender fees or escrow charges.
Recurring costs are those you’ll pay for over and over throughout the life of
the loan and include interest, taxes and insurance. No-closing cost loans typically
refer to non-recurring costs, not recurring ones.
Most any mortgage loan can be
constructed to provide some sort of lender credit and all lenders can offer
one. A no-closing cost mortgage can sound attractive but in reality there is a
closing cost to you- higher monthly payments.
Source: To view the
original article click here