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No Closing Cost Loans

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

There is very little humor in what is happening in the Real Estate Industry these days, but I have to admit I do get a chuckle out of the Ad’s that I hear on the radio from Internet Lenders.  Their Ad’s are usually about two topics, unrealistic interest rates and unrealistic Closing Costs. 

 

Lately the Ad’s that Internet Lenders seem to be flooding the air waves with, are the ones claiming to have NO CLOSING COST LOANS, or extremely low Closing Costs.  Being a Loan Officer, I know what makes up Closing Costs, and I know that there are Closing Cost that there is no way that a Lender can exclude, because they are Costs that are controlled by others.  Example:

 

  • Taxes:  Taxes are going to be collected by the town no matter who the Lender is.
  • Homeowners Insurance:  Properties need to be insured for fire, theft, property damage, and personal injury. 
  • Attorney Fees:  Connecticut is an Attorney State, meaning that an Attorney is going to do the Closing & does the Title Search.
  • Title Insurance:  Title companies do not provide their service for nothing.
  • Recording Fees:  The Town Clerks Office is going to charge the Attorney to record the Deed on the land records, and I don’t know of any Attorney that is not going to pass on that charge.
  • Appraisal Fee:  Once the appraisal is done the Appraiser wants to be paid right away.
  • Points:  There are points that are not associated with the interested charged by the Lender.  Those points are assessed by Fannie Mae, Freddie Mac, and FHA.  These points are because of low credit scores, the Loan To Value, or for non-owner occupied properties to name a few.

 

There could be other fees that are out of the Lenders control, but these are the most common.

 

The Lender may waive their:

 

  • Application Fee
  • Processing Fee
  • Points
  • Escrow Fee

 

But these are minor compared to the ones previously mentioned, and most of the time will add up to less than $1,000 if they charge them.  While the Fees charged by others, can add up to several thousand dollars.  I have often wondered how they explain the thousands of dollars that the Borrower will have to pay at the Closing after they have tricked them into applying for a NO CLOSING COST LOAN.  I would love to be on the phone when they give the Borrower the real figure.  Better yet I would love to be looking at their face when this news is delivered.

 

Are people really that gullible that they will fall for these advertisements, and still go through with the Closing when they find out differently?  I would love to talk to someone that has fallen for one of these scams, but I wonder if any of them would admit to it?

 

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Who To Call For Your Mortgage Needs In Connecticut:

 

George Souto NMLS# 65149 is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308  gsouto@mccuemortgage.com, or visit my McCue Mortgage Homepage.

Posted by

George Souto
NMLS# 65149

C (860) 573-1308
CALL 7 Days/Wk
Fax (860) 760-6891

Email Me
About Me
My Blog

I am a Mortgage Loan Officer who can assist you with all your mortgage & refinancing needs in
CT, and RI

I can assist you with your Conventional,
FHA, CHFA, VA, USDA, & 203K loan programs.

I reside in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Haddam. E. Haddam, Higganum, Chester, Essex, Deep River.

 

Comments (44)

Terrylynn Fisher
Dudum Real Estate Group - BuyStageSell.com - Walnut Creek, CA
HAFA Certified, EcoBroker, CRS, CSP Realtor, Etc.

Um if you read all the comments, Paul and US mortgage have done them...I know of a lender here that does them as well.  There are costs and the borrower is not paying them.  Depending on the interest rate, there are rebates that cover the "closing costs"...so it can be done and they are out there.   You just need to go to a direct lender, the BROKER who does the loan and he rebates the part of the fee that would go to the loan agent and/or has a wholesale source with large enough rebates to cover the costs. 

Aug 19, 2011 08:22 PM
AndreaBFerreira CRS - SRS - CLHMS
Keyes Co. - Davie, FL
Miami Dade, Broward and Palm Beach County in FL

With all due respect, but when a buyer comes the subject, requiring such benefits, we can not consider a serious buyer, after all, there is no free meal, and nobody works for free. Every acquisition has a cost, the minimum that is .. Why Real Estate would be different? The Cheap is expensive ....

Aug 19, 2011 10:44 PM
Chuck Carstensen
RE/MAX Results - Elk River, MN
Minnesota/Wisconsin Real Estate Expert

Yeah I dont think people should add to their interest rate...the best way to keep the closing cost down is have the seller pay them and get a good price.  Not all seller will do this.

Aug 19, 2011 11:27 PM
Cheryl Ritchie
RE/MAX Leading Edge www.GoldenResults.com - Huntingtown, MD
Southern Maryland 301-980-7566
There is no such thing as a free lunch. Matter of fact, they can become very expensive.
Aug 19, 2011 11:27 PM
Shay Campbell
Universal American Mortgage Company - Raleigh, NC
Raleigh, NC

George as you know closing cost and rate go hand in hand. the higher the cost the lower the rate or the lower the cost the higher the rate.  Thanks for another good post.

Aug 20, 2011 12:35 AM
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of the Manchester NH's area Leading Agents

I hear the same ads on the radio. Every buyer needs to know that some costs just can not be avoided. These companies often make up their fees by charging a higher interest rate. Nothing beats a local and trusted mortgage broker, bank or credit union. Avoid internet lenders.

Aug 20, 2011 01:01 AM
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

George, someone has to pay these costs and one way or another the borrower will pay.

Aug 20, 2011 01:12 AM
K.C. McLaughlin
RE/MAX United - Cary, NC
Realtor, e-PRO, Homes for Sale - Cary, Raleigh NC

Thanks for the info and making it clear...sad how they try to take advantage. Enjoy your day.

Aug 20, 2011 01:13 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

The borrower doesn't know what "closing costs" means.  The advertisers rely on that fact.

Aug 20, 2011 01:20 AM
Bryan Robertson
Los Altos, CA

I thnk most of those internet lenders are scammers using deliberately evasive language to get people to sign up and then hit them with a few fees once they get to closing.  They also very likely have a careful definitely of "closing costs" so that points and other fees can be lumped on.

Aug 20, 2011 02:53 AM
David J. Stiles
Waynesville, NC

This spring I represented buyers who used a nationwide military supportive organization for their mortgage because it was supposed to be total no cost mortgage (except for tax escrows and homeowner's insurance).  I expressed my doubts but my clients showed me the advertisements and confirmatory emails from the long distance loan officer.  Needless to say it the lender did not cover all the other closing costs at the closing as there were a number of NY specific closing costs that they would not pay for when push came to shove.  The loan officer had built expenses into fluff in the GFE (as an aside have you notice the inflated closing costs most loan officers use in the GFE to cover such situations?).  To top it off in violation of RESPA my client had to use a lender dictated title company. 

My clients had to admit that I was right and the no cost loan would not be no cost. I will give a credit to the lender as they did pay some expenses (i.e. mortgage tax) that is usually a buyer's expense and my client's closing costs were lower than they would have been otherwise but it was not a no cost mortgage.

Aug 20, 2011 02:53 AM
Rob Spinosa
US Bank - Larkspur, CA
Mortgage Loan Originator, Marin County

I'll contribute here what I tell all of my clients:  It's only a good deal if it closes.

One of the very promising things about the great real estate shakeout of the last four years is that those with whom I've worked have been able to experience great service, value and accountability with their home finance.  As a result, the customer satisfaction levels have been wonderfully high and I'm very happy about that.  Everyone has a choice, and I think it's a decision that's becoming more clear.  Go with the internet or radio ad filled with hype and promises, or go with the guy who's been there for the last ten years, knows what he's doing and can get a great deal done regardless of how you'd like to structure the it (no cost, etc.).

Great post, as always.

Aug 20, 2011 03:38 AM
Elizabeth Weintraub Sacramento Broker
Elizabeth Anne Weintraub, Broker - Sacramento, CA
Put 40 years of experience to work for you

People are gullible and naive. I was at the nail salon yesterday afternoon, so I was forced to look at day-time TV. A commercial came on: GET out of DEBT. Improve Your CREDIT Rating. And it was all about taking out a consolidated loan. WTF? But people fall for it.

Aug 20, 2011 03:55 AM
Scotti Jowers
CENTURY 21 Shackelford French, Search West Monroe Homes - West Monroe, LA
Realtor - West Monroe, Louisiana Homes for Sale

George,

What's the old saying? If something sounds too good to be true, then it probably is too good to be true? There's a sucker born every minute? I'm sure there are more. Just pick one. Thanks for sharing.

Aug 20, 2011 04:51 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

George - As you and I both know, there are always ways to roll the closing costs into the loan by increasing the interest rates to a point where the YSP will cover the closing costs.  I don't think you will see any MLOs on this post that will dispute this process.  However this is not what so many borrowers think when they ask about a no cost loan based on some ad they heard or read.

Aug 20, 2011 05:46 AM
Chris Montz
Network Funding, LP - Birmingham, AL

George, lately I have battled this same situation in my market too.  Truth is I have actually lost a few loans to banks waiving a lot if not all of their closing costs including those fees you mentioned.  I dont know how they do it.  Most experiences with banks I have seen is the in order to make this no closing costs deal they require them to bank with them and move all of their deposits to them.  So in other words  they are using this tactic to get get money from them.  I think the reason they are able to do this is most bank loan officers are paid peanuts and have to punch a clock with the new compensation plans we fell under back in April.  I think this is very unfair for us mortgage bankers and it may be a ploy to put the rest of us out of business.  And in doing this they will move all lending to banks so that the government control everything.

Aug 20, 2011 05:55 PM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

It is too bad these folks aren't reprimanded.  This is part of what happened in the melt down.  While some should not have gotten loans, some lenders completely mislead buyers.

Aug 21, 2011 01:31 AM
Lyn Sims
Schaumburg, IL
Real Estate Broker Retired

First time buyers would often believe it to be true. After their 1st closing, they soon realize they've been had. That's unfortunate. Maybe it's a spin off the once popular no points loan.

Aug 22, 2011 05:00 AM
George DiGregorio
Zenith Mortgage Advisors - Hopkinton, MA

There are really only two things you need to remember about mortgages.

1. No one gives away free money, ever.

2. For best results, always use a Loan Officer named George.

 

 

Aug 22, 2011 05:08 AM
Eric Holmes
First Federal Lending - Westerville, OH

Please don't be so quick to knock the benefits of a true, zero closing cost loan for an informed and properly educated borrower. While "zero cost" or "zero $ to close" marketing by internet lenders and shady local lenders may generate phone calls from gullible borrowers looking for a free lunch, true zero closing cost loans are not a "scam", "nonsense" or "a rip off". They can very well be a smart, savvy, financial decision and part of a brilliant, systematic way to reduce a borrower's interest rate over time as rates decrease.

While there is NO such thing as a zero COST loan, since you're always going to pay a higher interest rate in exchange for lower upfront fees, a zero CLOSING cost loan can save the borrower tens of thousands of dollars in a declining rate environment or if the borrower will keep this loan for less than 3-4 years. The question should be a clear one for the borrower - "which option is less expensive over a given time period? Paying thousands of dollars upfront at closing in the hope that rates will increase and my rate will be the best I can get over the next 3-5 years, OR should I pay zero closing costs, but a few dollars more in interest each month, in order to give myself the opportunity to take advantage of any momentary dip in interest rates and lower my borrowing costs?" 

The answer isn't the same for everyone but over the past 15 years or so the borrower choosing the zero closing cost loan has been the wise one and has saved tens of thousands of dollars compared to the borrower who paid their own costs at closing. I can pinpoint hundreds of clients of mine who have heeded my advice over that time period and are grateful for having this option presented to them and explaining both sides to them. However, with rates appearing to be nearing an all time low currently, I would suggest that fewer and fewer borrowers might select this option going forward.

Also, let me define a true zero closing cost loan to be zero appraisal fees, zero lender fees, zero title fees and zero recording fees. These closing costs are all NON-RECURRING costs that are only incurred at closing, unlike taxes, insurance and interest which continue after the settlement date are many time incorrectly lumped in as "closing costs". "Settlement costs" should be defined as both recurring (tax, insurance & interest) and non-recurring (closing costs) costs that occur at the time of settlement.

The next time you're looking to finance a property, ask a knowledgeable lender to explain the benefits (and the risks) of choosing a zero closing cost loan, then make an informed choice that fits your own financial strategy and tolerance for risk. I normally would only suggest this option for borrowers with loan amounts of at least $200,000, but it seems to work best for loans over $300,000 as the bump in rate to get zero closing costs may only be .125%

I hope you find this helpful and informative!

 

Aug 23, 2011 05:37 AM