By the time you total loan origination and appraisal fees, title searches, insurance, surveys, taxes and credit report charges, closing costs add up.
When you’re shopping for a mortgage, you might hear about a no-closing-cost mortgage. Sounds like a great deal — but is it? Let’s dig into no-closing-cost mortgages and you can decide for yourself.
Best Mortgage Lenders for No Closing Costs:
- Best Overall: Quicken Loans®
- Best for Veterans: Veterans United
- Best for Self-Employed Lenders: Luxury Mortgage
- Best for an Online Mortgage Process: Better.com
- Best for FHA Loans: Guild Mortgage
Can You Really Get a No Closing Cost Mortgage?
Yes, it’s possible to get a no-closing-cost mortgage. That doesn’t mean you’re not paying for your closing costs, though — you’re just not paying for them with cash upfront.
Your closing costs might be rolled into your mortgage, which increases your loan amount. Your lender might also offer you lender credits in exchange for a slightly higher interest rate. (We’ll cover more about lender credits below.) Both of these scenarios result in a higher monthly payment, but it might be worth it not to have to pay cash upfront.
Another way you can obtain a no-closing-cost mortgage is to get your seller to pay for closing costs. Sometimes sellers will cover closing costs if you make a higher offer. You might be able to get the seller to pay closing costs so you don’t have to make a higher offer.
Another scenario where sellers could pay closing costs is if the home needs repairs. Instead of paying for repairs, the seller might offer to pay your closing costs. This means you take care of the repairs your new home needs.
Typical Closing Cost
Closing costs are costs that you or the seller need to pay to close your mortgage. Closing costs amount to around 2% to 5% of your purchase price. This means that for a $150,000 home, you should expect to pay $3,000 to $7,500. Closing costs don’t include your down payment, which can vary depending on the type of mortgage you choose. The average national closing costs for 2018 were $5,779, according to ClosingCorp.
What are you paying for at closing? Closing costs typically include:
- Lender fees: Lenders usually charge one or more fees for providing you with a home loan. These are sometimes called origination fees. Some lenders list out each individual fee, while others lump them all together into one fee that covers everything. Lender fees vary, so when you get a mortgage quote, you can ask about lender fees to help you compare your options.
- Title fees: These fees make sure the title to the home is clear. These include title insurance and title search fees. These costs vary from company to company and you can shop around for providers for these services to keep costs down. You can also decide whether to buy owner’s title insurance, which protects you if a previous owner didn’t pay taxes on the property.
- Taxes, insurance and other government fees: You may pay homeowners insurance and property taxes for the upcoming year when you close. Your local government may also charge a fee for completing a real estate sale.
No Closing Cost Mortgage Process
So, what does a no-closing-cost mortgage look like? That depends on the lender. Let’s explore a few scenarios for a no-closing-cost mortgage or refinance.
Some lenders offer lender credits. This means the lender pays some or all of your closing costs in exchange for a higher interest rate. Let’s say you’re buying a $150,000 home. After a 20% down payment, your loan will be $120,000. Your lender offers $3,000 in lender credits to help cover closing costs.
Your loan interest will be 0.375% higher than it would have been without the credits. Over a year that’s an extra $314.88. Over 10 years, that’s $3,148.80.
Each lender sets its own interest rate increase for lender credits, and not every lender offers lender credits.
Rolling Closing Costs into Your Mortgage
Another option is to add your closing costs into your mortgage. This increases your mortgage amount, which also increases your monthly payment. Let’s say you had the same situation as above — a $150,000 home with a 20% down payment. Your interest rate is 4%. You have $3,000 in closing costs, so instead of taking out a $120,000 mortgage, you’ll take out a $123,000 mortgage.
At $120,000, your monthly payments would be $572.90. At $123,000, your monthly payments will be $587.22. That’s a modest increase of about $15 per month.
Getting the Seller to Pay
Depending on the market, you may be able to get the seller to pay closing costs. This happens on a case-by-case basis, so talk to your real estate agent if you’d like to explore that option. You may need to make a higher offer to compensate for the closing costs, but it might be worth it in the long run.
Best Mortgage Lenders for No Closing Costs
What’s the best mortgage lender for no closing costs? Unfortunately, there’s no way to guarantee a lender will offer you a no-closing-cost mortgage. It all depends on your individual situation.
The best option is to work with quality lenders that have a proven track record of transparency. You may also want to explore home loans that don’t require a down payment, which can also significantly lower your upfront costs.
Here are our top picks for mortgage lenders with great track records.
1. Best Overall: Quicken Loans®
Quicken Loans® offers award-winning customer service. This means you can expect clear communication from loan experts about every aspect of your home loan, including closing costs.
Quicken Loans offers a wide variety of mortgage products, including conventional, FHA, VA and USDA loans. Whether you’re a first-time home buyer or have purchased and sold several properties, Quicken Loans is an excellent choice.
2. Best for Veterans: Veterans United
Veterans and current service members may be eligible for VA loans, which are available with no down payment. This can save eligible borrowers thousands in upfront costs.
Veterans United is a trusted choice if you’re considering VA loans. It offers around-the-clock customer service and has been the top VA lender for 4 consecutive years. It gets rave reviews from borrowers citing the professionalism and expertise of its representatives.
3. Best for Self-Employed Lenders: Luxury Mortgage
Self-employed borrowers face unique hurdles when it comes to getting a mortgage. Providing proof of steady income can be difficult when business finances vary. Luxury Mortgage understands that and offers a bank statement mortgage, which allows you to qualify based on your earnings as shown on your bank statements.
Luxury Mortgage offers personal service and has been in business for over 20 years. Its experts can guide you through every step of the process, including evaluating your options when it comes to closing costs.
Luxury Mortgage is only licensed to lend in CA, CO, CT, DC, FL, GA, IL, MD, MA, MI, NC, NH, NJ, NY, PA, SC, TN, TX, VA, WA.
4. Best for an Online Mortgage Process: Better.com
Better Mortgage Corporation offers a completely online mortgage experience. It also doesn’t charge a commission or fees for its services, which already significantly lowers your closing costs.
Better offers a high level of transparency so you know exactly what you’re paying for. Better is available around the clock and can provide you with a loan estimate in minutes. It offers speedy service that doesn’t compromise quality.
5. Best for FHA Loans: Guild Mortgage
FHA loans have low down payment requirements, which can free up funds for closing costs. Guild Mortgage offers FHA loans and can help guide you through the process. Guild Mortgage has been in business for almost 60 years and has branches around the country. You can work with an in-person loan officer who can help you evaluate your closing cost options.
Is a No Closing Cost Mortgage Right for Me?
A no-closing-cost mortgage may be right for you, but it depends on your situation. Our mortgage guide can help you consider all your options. Before you decide, get quotes from multiple lenders and review each carefully. Consider your down payment, closing costs and interest rate when you make your decision. There’s no one-size-fits-all solution, but you can find the right mortgage with the closing costs tailored to fit your needs.
Get Ready for Take Off
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