No Closing Cost Mortgage Lenders
Paying for closing costs can be a barrier to purchasing a home for many people with limited funds. No closing cost mortgage lenders offer home buyers the opportunity to reduce or eliminate the out of pocket costs related to the purchase of a home.
What are Mortgage Closing Costs?
Closing costs will range anywhere from 2%-5% of the purchase price of the home. Your closing costs are determined by many factors from the size of your loan to the type of mortgage you choose. For example, FHA loans tend to have higher closing costs than conventional loans.
Closing costs are broken out into three categories:
- Lender Fees – Lender fees are completely controlled by the lender and this is where the lender has the ability to reduce the closing costs. Some of these fees are application fees, underwriting fees and origination fees. You have an excellent chance of having these lender fees waived through negotiations.
- Third Party Fees – Third party fees include appraisals, attorney fees, title search and title insurance fees, flood certifications and pre-paid homeowner’s insurance. Lenders have no control over these fees and therefore have no ability to reduce them on your behalf.
- Government fees – There are government fees tied to your closing costs such as recording fees and transfer taxes. These are real costs that someone must pay for.
- Escrows – Many lenders require you to escrow your property taxes and homeowner’s insurance so they can make those payments for you. This typically means you provide the first three month’s in advance at closing. These are costs that you would have to pay anyway, but the challenge is coming up with it up front. Some lenders offer the ability to opt out of tax and insurance escrows but the could lead to a slightly higher interest rate.
- Pre-Paid Interest – When you close on your mortgage, you will owe interest at closing for the balance of the month. The earlier in the month you close, the higher the pre-paid interest balance will be at closing. For example, if you close on the 1st of the month you will owe about 30 days of interest. If you close on the 29th of the month you may owe about 2 days.
The only closing costs that are negotiable are the lender fees. Everything else must be paid for by either the borrower or the lender on the borrower’s behalf.
Can You Get a Mortgage with No Closing Costs?
You can get a mortgage with no out of pocket closing costs, but there are closing costs which must be paid by someone either at closing or by the borrower in the form of a higher rate.
Lenders simply cannot afford to cover the third-party costs, government fees, escrows and pre-paid interest unless they are receiving a higher commission to do so. To receive the higher commission, they would have to lock you in at an interest rate that is higher than the current market rate.
The Best Way to Get a No Closing Cost Mortgage
The best way to get a no closing cost mortgage is to negotiate with the seller of the home to cover those costs for you. When we have a seller’s market with low inventory, it may be difficult to accomplish this. However, it is often common to include seller paid closing costs as part of the negotiation.
FHA loans for example permit sellers to contribute up to 6% of the purchase price towards closing costs. This is an excellent way to have closing costs paid for by someone else without inflating your interest rate.
A less common method is to ask the realtor to contribute towards a portion of the closing costs.
- No Closing Cost Lenders – Lenders who offer mortgages with no closing costs are willing to be creative in their approach to making homes more affordable for individuals with limited funds to close.
- Mortgage Broker – Mortgage brokers have some flexibility in their ability to offer no closing cost mortgages based upon how they are compensated. They earn a yield spread premium from the lender which pays them a larger commissions for locking in higher rates. This enables them to have a way to bring more dollars in to offset the closing costs.
- Online Lender – Online lenders such as Rocket Mortgage may have some occasional incentives which would reduce but not eliminate your closing costs. However, their loan officers typically do not have the ability to negotiate or get creative outside of their standard programs and offers.
- Large Banks – The traditional large banks such as Wells Fargo will be less likely to offer special programs to completely eliminate your closing costs. There are instances where you may find a discount or a benefit offered if you open a new account with them.
There are some differences between mortgage brokers, online lenders and large banks. We have investigated these differences for you and prepared the following article Read [Mortgage broker vs Small Lender vs Big Bank]
No Closing Cost Refinance
For refinances, you can have your closing costs rolled into the loan amount. Therefore, your closing costs are not truly covered by the lender but you will have no out of pocket costs related to the refinance. Virtually every lender offers this as an option provided you have enough equity in the home to cover the additional loan amount.
FHA streamline refinances are a great way to refinance without additional costs because they inherently do not require appraisals and the application process is minimal. With this program, any costs related to the refinance are typically rolled into the loan amount. Your lender is less apt to contribute towards those costs. Read [FHA Streamline Refinances]
The best way to get a no or closing cost refinance is to call your current lender and ask for a rate adjustment, not a refinance. Some lenders will offer you a lower rate that is close to market rates for just a small fee eliminating the need for a full refinance application and costs. When this occurs, you would keep your current mortgage but they simply adjust your rate and your future payments.
No closing cost refinance rates
The no closing cost refinance rates will typically be the same as the rate offered for a purchase unless the lender is covering those costs for you. Two primary factors that will impact your interest rate are your credit score and the loan to value ratio. The higher the credit score and the more equity you have in the home, the lower the interest rate will be.
Finally, if you plan to cash out equity during the refinance process, you can expect the rate to be slightly higher than if you were simply refinancing for a lower rate.
No Appraisal Refinance
The mortgage program that is known to be a no appraisal refinance is the FHA 203k loan. No appraisal is needed regardless of how or where home values have shifted since you purchased the home.
With this program, you need to have an FHA loan today and you also can refinance with any lender you want. Meaning, you do not have to go to the lender that currently holds your FHA loan.
Does it Cost Money to Refinance a Mortgage?
It typically costs anywhere from 2-3% of the loan amount to refinance a mortgage. There are real costs associated with refinancing your mortgage that you will need to pay for either out of pocket at closing, rolled into the new loan amount, or in the form of a higher rate.
If you were to visit the Chase refinance website to view what their costs are, you will see they also have real costs associated with a typical refinance.
Related Articles – No Closing Cost Mortgage
Refinance for Home Improvements – This article will share secrets on how to refinance your home to cash out equity for home improvements.
Refinancing with Bad Credit – If you have bad credit and need to refinance, this article will help prepare you for what is needed and how to qualify.