July 3rd, 2019 1:48 PM by Jackie A. Graves, President
no closing cost mortgage can save you money upfront but cost more over the long
The terms “no closing
cost” mortgage or “zero closing costs” home loan are a little misleading. You
might think the fees are waived or paid by someone else. But a no closing cost
mortgage means that rather than pay the closing costs out of pocket, the charges are
folded into your loan balance — or your mortgage interest rate.
likely that not every single closing cost can be rolled into your loan. While
your due-at-signing closing costs may be less with a no closing cost mortgage,
you may still be required to pay some fees at the settlement table. Those
specifics will vary by lender.
Closing costs can be hefty — typically from 2% to 5% of
the loan amount. It might help to calculate closing costs for your
To get a rough
idea, consider that on a $250,000 home you might pay somewhere from $5,000
to $12,500 at the loan settlement table. Closing costs vary
widely, depending on your location and your specific situation.
Closing costs have to be paid one way or the other. Your decision will be
whether you pay them with cash when you sign your loan, or as an added expense
in each monthly mortgage payment.
There are ways to reduce your closing costs, though, in part by
weeding out and negotiating lender fees and third-party charges, such as the
appraisal and title search. You may also qualify for closing cost assistance or
housing grants through a first-time home buyer program in your
state. Many of these grants are essentially free money, meaning they don’t have
to be repaid unless you move or refinance your home.
And if you have a military connection, VA loans have a limit on allowed closing
costs and don’t require the biggest closing cost of all: a down payment.
structure no closing cost loans in two ways. The differences between them are
subtle, yet the result is the same.
finance the closing costs. In this case, the lender
will add your closing costs to your total loan balance. Your monthly payments will
be slightly higher, and you’ll be paying these closing costs, with interest,
for the full term of your loan — so, for example, over a period of 15 or 30
lender will absorb the closing costs in exchange for a higher interest rate. Again,
you’ll pay a bit more each month, and your total interest cost will be greater
over the life of the loan.
way, your monthly payment rises slightly. You’ll pay less at the closing table,
but more over the long term.
If you’re going
to live in your new home for the long-term, there’s no doubt you’ll pay more
over the life of the loan by financing your closing costs or accepting a higher
It could cost
thousands — or tens of thousands more — depending on how many years you make
that higher payment, says Sarah Lindsey, a certified mortgage planning
specialist in San Diego.
But if you plan on moving or refinancing your mortgage within
three to five years, the all-in expense of wrapping closing costs into your
loan might not be an issue.
“If you have
short-term plans with the financing, not paying closing costs could be a really
good strategy,” Lindsey adds.
Find ways to lower your closing costs, negotiate the mortgage origination fee— and if this is your
forever home, it’s probably best to pay the closing costs up front.
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