Sometimes a “no closing costs” loan can be more expensive in the long-run. Every loan has closing costs and the lender only controls some of those costs like their own underwriting, processing fee, etc. There are other costs that the lender has very little control over, like the appraisal, title insurance, etc. If a lender is offering a “no closing costs” loan, you need to find out if they really mean NO closing costs, or do they just mean they aren’t charging you THEIR normal fees, but you are still paying all the normal fees that go to other parties?
Even if you do find a lender that’s offering a loan where you really aren’t paying ANY closing costs, you’ll still want to research carefully. SOMEONE has to pay for those closing costs. Maybe they are writing the check for those fees, but most of the time they will re-coup those funds either in a higher interest rate, or a higher loan balance, or a little bit of both.
So, you’ll want to look at all these factors when comparing two loans: What is the effective rate? What is the APR (annual percentage rate)? What is the beginning loan balance? How much cash do I have to bring in to close the deal?
If you are going to be in the home a long time, you are often better off NOT taking a “no closing costs” loan IF that means your interest rate will be higher. Maybe you’ll save a few thousand dollars now, but wind up paying tens of thousands in extra interest over the life of the loan. Conversely, if you know you won’t have the loan very long, then a “no closing costs” loan MAY be better for you BUT watch out for a pre-payment penalty clause. This is how the lender can try to re-coup those fees they paid for you at closing.
If you have questions about real estate, call me at (925) 240-MOVE (6683). Voted “Best of Brentwood” multiple times. To search the MLS for free, go to: www.SharpHomesOnline.com. Sharp Realty. #01245186