No closing cost loans are typically desirable to borrowers with little money to bring to closing. The title is somewhat misleading as there are always closing costs. However, the way those costs are recovered by a lender can be structured in different ways. The following is an overview of Metrowest MA no closing cost loans, what you should be aware of, and how it compares to mortgages with closing costs.
What Are No Closing Cost Loans
Fees apply to all loans because mortgage companies have expenses related to issuing mortgages, compensating brokers, etc. In a usual mortgage, the specific fees are outlined and payable as closing costs. However, not all home buyers have the money to cover these fees up-front. No closing cost loans are a solution to this problem.
There are two different ways that mortgage companies are able to provide no closing cost loans. One method is to obtain an increased interest rate, which allows them to receive the fees over time. The other is to add the closing fees into the amount of the mortgage.
Benefits And Risks
Whether to use no closing cost loans must be based on a few factors. If you intend to refinance your loan within a few years, then it can be a feasible option since the higher interest rate would be effective for a short number of years. This can be true during times where interest rates are high but are likely to lower in the future or if you expect to own a property for only a few years. On the other hand, if you intend to hold a loan for for its full term, then the cost of a higher interest rate over time will be significantly more than simply covering the closing costs in one lump sum.
It is important to understand that the lack of closing costs does NOT mean that cash will not be due at closing. Closing costs really only apply to only some fees. Other items, like property taxes, are actually pre-paid items. They are not classified as closing costs and may therefore still be payable at closing.
Metrowest MA No Closing Cost Loans
Metrowest MA no closing cost loans may or may not be the best solution for your particular situation. To make an educated decision on what loan option will work best for you, consider the interest rate and fees of each program. Also consider how long you intend to keep the mortgage and the the long-term cost. Most of this data can be reviewed by requesting a good faith estimate from your mortgage company.