No Points, No Fees Mortgage
These loans are possible. The lender will give the broker a
commission if you take a loan with a higher rate then what you qualify for at even (par) pricing. So if you qualify for a 7% and take a 7.5% instead then the lender will compensate the broker. The broker then uses this compensation to cover all of your fees for the loan plus pays himself. In the end you can get a loan for no points and no fees and the broker still gets paid for the work.
Another way to have fewer out of pocket costs associated with acquiring a loan and still get a decent rate is to work with the seller of the property and ask for 3% seller contribution. You can use this to pay for closing costs and/or down payment. This is becoming more and more common these days and most state promulgated contracts provide a place for this amount. In hot markets it may not be as easy to get this accomplished.
If you have a home that you believe you will live in for the rest of your life (or at least a long time) then it will be in your best interest to take the lower interest rate and pay the closing costs. The closing costs can most often be made back within the first 3-5 years of your loan; whereas in taking the no closing cost loan with a higher interest rate, you are stuck with that higher rate and payment for the life of the loan.
Have your mortgage broker calculate the exact length of time you should be in your home in order to have a no cost loan, and paying higher interest, make sense. Basically you take the costs you saved and divide by the increased monthly mortgage payment. This will tell you how many months you can have this mortgage before it starts costing you to have chosen the "no cost" mortgage.
No Points No Fees or Zero Closing Cost loans are usually not available on smaller loan amounts.
Often its best to pay the points. Have your broker figure out which way you come out ahead.
There are Mortgage Brokers and Agents who have special pricing available with the banks they work with, and who have worked out special pricing with their title and escrow companies. Some of these Brokers can offer borrowers a Cost Free Refinance, at truly competitive interest rates. Make sure to always compare the Good Faith Estimates (GFE) between the brokers/banks you are considering doing business with. The GFE's will show your total costs as well as the interest rate and APR.
If you are planning to stay in your home for 1-2 years you should consider a zero cost loan.
Such a program may end up costing you significantly more in the long-run depending on the loan type.
Be careful of those that tout "no fee loan," when in reality they only intend on not charging origination points or processing fees. In this particular case the lender still will be charging all other fees associated with the loan. A Good Faith Estimate should dispel what is really being paid for or assumed in the financing.
The no points or no fee loans are best for short term loans. If it is a property that you plan on living in for a short time than the
thousands that you save in fees will be greater than the savings for the first few years allowing you to close your mortgage with less money out of your pocket or a lesser loan amount.
Not all No Fees Loans are created equal. Some No Fees loans require the home buyer to pay for home inspection and appraisal report. Others only mean no lender fees. Applicants are still required to pay for third party fee such as recording fee, taxes, insurance, etc. When
shopping for No Fee loans, it is important to compare the Good Faith Estimates and find out what exactly are being paid by the lenders.
Become an educated consumer and directly ask the lender what is included in the "no fees" loan and if it covers third party fees. Then ask how it will effect your interest rate.
The key thing for the borrower to realize is that in a No Points No Fee Loan is does not mean that the points and fees are simply being given away. They are just being paid for in a different way. What way is right for you will depend on your individual situation. Unfortunately, much of the advertising for a No Point No Fee Loan implies the opposite, that the lender is giving away these costs. Smart consumers need to understand that they are being way to naive if they believe that to be true.
As an example, consider a no-down-payment auto lease, where the dealer still expects you to pay taxes, tag, fees and freight. The down-payment in this example would equate to the lender fees, but your local city and/or county government still expects (requires) you to pay the county tax, and you must pay to record the deeds, etc. A complete, detailed good faith estimate, or GFE, will highlight line by line what fees you are being asked to pay.
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Information listed above is to be used for educational purposes only and is not guaranteed