No Cost Mortgage Loans - No Points No Fees

No-Cost Mortgages: Really?
In today’s volatile mortgage market, the thought of anything called a “no-cost” mortgage sounds enticing. But what are these offerings?
A good no cost mortgage most often refers to a loan that waives or pays for the borrower’s closing costs. Many borrowers are surprised when they complete their mortgage transaction by the presence of extra fees that can add up to thousands of extra dollars. These closing costs are due at the time of signing, and can be a painful addition to the process.
Closing costs include:

Title & Escrow Fees: These fees include the owner's and the lender's policy of title insurance, as well as the escrow fee, and will vary widely by region and lender. Title insurance ensures a clear chain of title, and in some cases protects against fraud and forgery. The escrow fee is a service fee charged by the title company to act as an independent third party and handle the transaction, and ensure all parties perform as agreed. Additional title fees can include: notary fees for the mortgage documents, fees required to record your deed of trust with the county, and miscellaneous drawing, courier and express mail fees. Note: the title insurance policy is typically 30% higher on a purchase mortgage than a refinance mortgage.

Lender's Fees: These fees are known by many names, including underwriting, processing, administrative, document preparation and funding fees. They all refer to the flat fees a lender charges to process and fund a mortgage. Additional lender fees can include wire, tax service fees and flood certification fees. These fees are charged by most lenders and range from approximately $795-$1,250 in total fees charged.

Appraisal Fees: Usually lumped in with the closing costs, these fees are actually separate. They’re paid directly to the appraiser for their inspection and appraisal services. The typical fee for a standard, owner-occupied, single family home, condominium or townhouse is $300-$400. An investment property may require a rental survey and an operating income statement to be completed, adding additional $200-$300 to the cost.

Credit Fees: Fees involved in background credit checks, ranging from $20-$35 per person or per married couple.

Any opportunity to get rid of these fees is a good one, right? But are you really getting these fees completely waived?

Tricky lenders may offer a No cost mortgage where they are actually usually just folding the closing cost fees into the rest of the loan. This means that borrowers opt out of paying fees upfront and out-of-pocket, and opt in to adding to their loan’s principal balance which leads to higher interest payments. The costs are there, and may become larger over time.

For some homeowners, this leeway at closing time is well worth it. No-cost mortgages are found in new home purchases. Far more common, however, is no-cost refinancing. In this instance, homeowners can refinance to a more favorable loan in times of lower interest rates, and escape the closing costs. In some cases (and usually in more favorable markets) homeowners can move from no-cost refinance to no-cost refinance every few years, never spending money on closing costs.

A no-cost mortgage may not make sense for people who plan to stay in their homes for more than five years. For these homeowners, the most economical method is to pay the closing costs and fees upfront to obtain a lower rate. The lower interest rate and lower principal adds up over time.

Mortgage Rates provided by ERATE®

Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.

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