No cost mortgage rates; everyone wants one but few people actually obtain one. Talk radio is filled with mortgage companies promising a "no cost" mortgage loan for qualified borrowers but many people simply don't believe and for good reason. The term "no cost" is abused by some lenders and there really is no other way to put it. Some mortgage companies truly offer a "no cost" loan but most don't. This article will help you understand what some lenders mean and what to look for.
An Important Fact:
Nothing is for free in life and neither is your "no cost" mortgage.
If you were someone who actually received a no cost rate; one in which all closing costs (everything) were covered then you are one of the lucky ones (more on this below). But know this; you locked in a higher rate than if you paid some closing costs. It's true; lenders don't offer mortgages for free and even if your Loan Officer didn't explain it that's what happened.
Now that we have that out of the way lets cover some of the meanings "no-cost" has in the mortgage industry.
- The first definition is some lenders mean just that; not a single penny in fee or cost is charged directly to you. The lender is charging a higher rate to cover all the closing costs.
- The second definition is some lenders mean that there are no "third party" costs
- The third definition is some lenders believe no cost loans are ones in which they don't charge a lender fee (ie underwriting) but still charge points and third party fees.
- The fourth definition is some lenders believe no cost means lender and third party fees are covered BUT they'll still charge you one or two origination points.
If you're laughing right now that's not to surprising but there really is four definitions to that one term. It's absurd really but that's the truth and if you are searching for a no cost mortgage rate you need to be aware of how some lenders define "no-cost".
A Simple Solution:
If you are okay with paying a slightly higher interest rate to get a loan in which all closing costs are covered than you really need to work with a reputable lender. One that has an A or A+ rating with the Better Business Bureau and top ratings on other major review sites (like Zillow or Yelp). And work with a Loan Officer with years of experience, someone who knows what he/she is doing.
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