Intro: What You Need to Know About No-Closing Cost Mortgage or No Closing Cost Refinance
Purchasing a home can be one of the most rewarding events in your life. However, the associated costs for financing a home can make the process of getting a home a stressful experience at the same time, especially when it’s time to close the sale.
This stressful part comes when potential home buyers review their mortgage closing costs and see that they will need to pay additional fees to cover the paperwork as well as a wide range of other items.
For example, you can expect that some of your mortgage closing costs will include expenses for retrieving credit reports, home inspections, property appraisals and escrow accounts. You can expect lenders to come up with two months to over a year’s worth of these costs as collateral.
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Dealing with the process of funding mortgage closing costs can also cause some deals to collapse. This may be because the buyer does not have enough funds to take care of the mortgage closing costs or is unable to obtain extra money to finish the transaction.
But is there a way to avoid these costs and get a no-closing cost mortgage or a no-cost refinance option?
This article will help you go over the typical mortgage closing costs you can expect when purchasing your home and guide you through your options for finding a no-closing cost mortgage or no-cost refinance option.
This no-closing cost mortgage and refinance guide will also cover information pertaining to refinancing options sans closing costs. No-cost refinance is a similar option to no-closing cost mortgage.
By understanding the process and seeing what options might best suit your needs, you can get through and reduce this stressful part of the home buying (and refinancing) process. Let’s focus on the key concerns of these closing cost alternatives and how to obtain them.
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What People Want to Know About Getting a No-Closing Cost Mortgage or No-Cost Refinance
If you think you are the only home buyer or owner searching for a no-closing cost mortgage or no-cost refinance option, then you can change that mindset.
Shoppers for homes often search for these solutions and have other concerns regarding getting a no-closing cost mortgage or no-cost refinance options, such as:
- How do lenders define a no-closing costs mortgage or no-cost refinance option?
- What are the steps to get a no-closing costs mortgage or no-cost refinance option?
- Are mortgage closing costs avoidable?
- How much can I expect to pay for mortgage closing costs?
- Are there fees associated with choosing a no-closing cost mortgage or no-cost refinance option?
- Is the no-closing cost mortgage or no-refinance option worth it?
Many of these questions can be answered by going through the process of obtaining the no-closing cost mortgage or by getting a no-cost refinance option. Let’s take a look at how to get one of these alternative financing options FOR mitigating mortgage closing costs.
Steps to Getting a No-Closing Cost Mortgage or No-Cost Refinance Option
- Locate and Discuss Your Options with a Housing Counselor Approved by HUD
By now, you should know that after finalizing the deal with the seller, that you must face additional fees to validate the sale or refinancing of the home. This will make your mortgage cost increase and force you to pay possibly thousands of dollars up front to secure the deal.
However, not every person is able to come up with this type of money, especially if they did not speak to a professional who is well-versed in the real estate buying and refinancing processes.
That’s why it’s always important to speak to a professional for help. You can start your search by locating an approved U.S. Housing and Urban Development Department.
Find a counselor on the HUD website so you can ensure the counselor has been approved by the appropriate authority. The counselor can provide you with insight on how to negotiate terms and how to find lenders all for an affordable cost or, in some cases, for free.
Also, the HUD-approved housing counselor can help you identify and avoid any predatory lending practices and ensure that you are working with reputable individuals. By consulting with a HUD-approved counselor, you may save yourself thousands of dollars on mortgage closing costs or no-cost refinance options.
- Determine the Definition of a No-Closing Cost Mortgage or No-Cost Refinance Option
Because there is a no-closing cost refinance option if you’re doing a refinance and a no-closing cost mortgage option if you’re doing a regular new home loan, it is vital to have banks or lenders provide their definitions of “no cost.” Different lenders can define the term in different ways.
You may think that no cost means that it is free. However, this is rarely the case. In fact, many lenders roll what would’ve been the closing costs into your mortgage and just rebrand the financial instrument they are selling you as a no-cost mortgage or a no-cost refinance offer.
Image Source: No-Closing Cost Mortgage or Refinance
In this case, lenders usually mean that you do not have to spend money upfront out of your pocket at the time of closing. Instead, you have a few options. One way a no-cost mortgage can be implemented is by rolling the cost into the loan.
Buyers can also take advantage of the no-cost mortgage, and no-cost refinance option by increasing the interest rate they are paying. Therefore, you want to make sure you truly understand that a no-cost mortgage or a no-cost refinance option will still actually cost you money.
Making sure you understand how a lender defines a no-cost mortgage or a no-cost refinance option can also affect how much your monthly payment will be. According to Bankrate.com, this option will, in fact, provide greater overall savings if you plan to own your home longer than five years.
However, if you plan to be in the home for less than five years, it will be far better that you pay the closing costs upfront.
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- Locate a Lender that Offers a No-Closing Costs Mortgage or No-Cost Refinance Option and Ask Questions
If you consulted with a HUD-approved housing counselor or you already worked with a lender at your local bank, then you are already ahead of the game.
However, if you are in need of a lender, make sure you look for reputable lenders that offer a no-closing cost mortgage or no-cost refinance option. If they don’t even offer the option, then you don’t want to waste your time asking questions that they cannot answer.
Don’t forget to shop around for the right lender as well. If you don’t have a rapport or trust with a lender, you may be with a lender that cares more about the sale than making sure they have a long-term customer.
Have an inventory of questions to ask the lender so that you are not forgetting any important questions or concerns that need to be addressed.
You also want to ask yourself why you are trying to refinance or get the no-closing cost mortgage in the first place. You also want to make sure that you are picking the right no-closing cost mortgage or no-cost refinance option for the right reasons.
This will help you clarify whether the closing cost alternatives that are presented fit your financial goals.
- Get an Estimate
Before you settle on a specific price, make sure you get an estimate in good faith. Lenders must provide you with these types of estimates by law.
Under the Real Estate Settlement Procedures Act, or RESPA, lenders have to provide full details concerning any expenses or time-sensitive data that can affect the sale of a property, such as mortgage closing costs.
You’ll be able to get a breakdown of each individual expense related to your no-closing cost mortgage or no-cost refinance option so that you are fully aware of what to expect on your monthly payments.
This good faith estimate can also serve as a guide to compare against other lenders’ offers so you can ensure that you are getting an ideal offer that best fits your needs. Therefore, if for any reason a lender claims they cannot provide this estimate, then it’s time to look for another lender.
A reputable lender will give you these good faith when requested.
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- Review the Lender’s Terms and Conditions
Above all, it’s very important that you review all terms and conditions in your contract before you finalize and sign it. That’s because a mortgage or refinancing your home is still a contract. You don’t want to be blindsided by astronomical fees you were not aware of or did not agree to have in your contract.
Remember that these no-cost refinance options and no-closing cost mortgages are not actually free. Common closing cost fees will be reflected in the form of either higher interest rates or a higher monthly payment.
If you’re not comfortable reviewing the terms and conditions on your own, make sure you enlist the help of a professional.
You can get assistance from a real estate lawyer or work with a counselor or financial advisor to help you make the right decisions regarding the terms and conditions of the no-closing cost mortgage or no-cost refinance option.
- Sign the Contract
If everything is to your liking, then signing the contract is the final step you need to complete to take advantage of a no-closing cost mortgage or a no-cost refinance option. Make sure you can pay the monthly payments you have set up before you sign off on the contract.
You don’t want to sign off on an agreement that you cannot keep, especially for a major purchase, such as a home. However, if you are fully aware of the contract terms and conditions and find the no-closing cost mortgage and no-cost refinance option, then sign the contract.
Is the No-Closing Cost Mortgage or No-Refinance Option Worth It?
Unfortunately, mortgage closing costs are unavoidable, but understanding the available options to spending cash or funds out-of-pocket can help you save thousands in closing costs. Let’s break down the math and further explore whether a no-closing cost mortgage or no-closing cost refinance will be best suited for you.
In a recent survey conducted in 2015, home buyers who had a mortgage cost of $200,000 on average paid a little over $1,800 in closing cost. If you are unable to come up with that amount of money upfront, you can ask your loan officer if a no-closing cost mortgage is an option.
When opting for this closing costs alternative, you may be surprised to find that many firms will allow you to tag your closing costs onto your mortgage cost.
However, this option does come with a price in the form of higher interest rates. For example, according to Bankrate, if you offered an interest rate of 3.75 percent and take the no-closing cost mortgage option, you could see your new rate bumped to 4.125 percent.
This option can be a good option for you if you plan to stay in the home over five years because you will wind up spending more money in the short term. In short, this should only be an option if you want to stay at that location for over five years.
On the other hand, when it comes to no-closing cost refinance, it becomes a bit more difficult as the cost associated with doing this can cost upwards of almost $4,000 in fees.
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Final Thoughts
Buying a home will probably be one of the biggest purchases you make in your life. That’s why you don’t want to overlook all of your options when it comes to getting funding to cover your closing costs.
Obtaining a no-closing cost mortgage or no-closing cost refinance option are alternative ways to finance these final costs. However, keep in mind that every lender has a different definition of these terms.
Consult with a housing counselor that’s approved by HUD to point you in the right direction and help you understand all of your options. If you decide to take the route of obtaining a no-closing cost refinance option or no-closing cost mortgage, then make sure you find a lender that can define his terms and offers favorable options to fit your financial goals.
Carefully read every condition within the contract before you sign so that you can ensure you are getting what you need and that there are no surprises when it’s time to finalize the sale.
If you’re still wondering if it is worth getting a no-closing cost mortgage or no-closing refinance option, then you can take these steps to come to the best decision that fits your needs.
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