May 3, 2012. Paul Hixon
The no closing cost home loan can help you save thousands, at least in upfront payments. With most closing costs exceeding 10,000, such an amount can wreak havoc on your bank account.
This is especially the case if you get a loan for 200,000 or more. You may have to pay 42,000 down just to have the privilege of monthly payments in the future! Mortgage loans with no closing costs erase these fees, though the methods for doing so will depend on the type of deal you plan on getting.
If you are getting a no closing cost home loan for a new property, there are two ways mortgage providers will eliminate these fees. The first is involves making a deal with the seller. Sometimes they will pay the closing costs themselves by subtracting the fees from the proceeds of their sale. Alternatively, the mortgage provider itself may cover the fees. However, in exchange, the closing costs get added into the loan. So, going back to the 200,000 example mentioned earlier, if you got a no closing cost home loan, the 42,000 fee would get tacked onto the original amount. This would make the loan 242,000.
In fact, this type of arrangement is very common for refinance loans. Mortgage providers realize that most homeowners do not want to pay tens of thousands to access a second loan. But if they pay for the closing, the loan becomes more attractive. In some cases, homeowners may come out of the deal with a extra money, especially if there is a lot of equity in the house.
With that said, the no closing cost home loan is a very attractive option for new and existing homeowners. However, unless a third-party pays for the costs themselves, these fees are never really erased they are just redistributed. Even still, if you do not have that type of cash right now, paying an extra 50 or so on your mortgage is definitely better than nothing.
Updated May 3, 2012. Published February 9, 2011. Paul Hixon
