No-Cost Mortgage

ZERO | LOW COST MORTGAGES

A no-cost mortgage is a regular mortgage that has no lender fees plus in some cases no 3rd party fees such as title insurance fees, recording fees and escrow set-up. A no-cost loan can be done with any loan program including conventional, FHA, VA, or USDA. To avoid these costs, a credit(rebate) can be applied to the loan. If a credit is not applied, the closing costs will be added to the new loan or would need to be paid at closing.

What Costs Can The Credit Cover?

  • Title Insurance » Cost will range between $600 to $2500 depending on loan amount and loan type.
  • Loan Processing Fee » (Lender Fee) » Will range between $250 to $800
  • Escrow » Escrow setup can be as little as $500 for a refinance up to a few thousand dollars if you’re purchasing a home. Learn more about Colorado property taxes here.
  • Underwriting Fee » (Lender Fee) » Will typically range between $300 to $1,000 depending on loan program and lender. This fee is usually discounted on government streamline programs.
  • County recording/Flood certification/Tax certification » These fees should never exceed $250 if purchasing or refinancing in Colorado.
  • Up-front mortgage insurance/VA funding fee » Can range between zero up to 3.3% of your loan amount depending on loan program and loan type.
  • Misc. lender fees » Can be origination fees, discount points, administration fees, other junk fees.

How To Shop For A No-Cost Mortgage

The Loan Estimate is a document that will help a borrower compare offers from different lenders. All lenders are required by law to provide this document within 3 days of application. The lender credit will be located on the bottom of page 2 of the Loan Estimate under Box J. TOTAL CLOSING COSTS. Learn More about how to shop for the best mortgage deal.

Is Doing a No-Cost Mortgage a Good Idea and What’s the Point

Absolutely! In case of a purchase, this works well for a borrower who has a limited down payment and need a little bit of help to cover their closing costs. This can also be beneficial to a homebuyer who doesn’t want to deplete all of their savings.

In the case of a refinance, the goal is to maintain more equity in the borrower’s home and avoid adding closing costs to their loan. For example, let’s compare a $400,000 loan amount and a 6.25% interest rate with $4,000 in closing costs versus a 6.5% rate with no closing costs. Which offer is better? Well it all depends on how long you’re planning on keeping your home. The difference in monthly payment between 6.25% and 6.5% will be $65 per month. So how long will it take to recoup $4,000 in closing costs? $4,000 divided by $65 per month savings = 61 months or roughly 5 years. So a borrower who chooses the lower rate will recoup their costs in that time. On the other hand, if a borrower is planning on staying in the home for over 5 years, they would benefit from the lower rate.

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