No Closing Cost Loans - You will have an interest rate that is slightly higher than the rate available for a mortgage loan where you pay closing costs, points, and fees.

A "No-closing cost" loan might be suitable if you plan on holding the mortgage note for a short time or if the difference in payment and rate between a "no-closing cost" loan and standard fee loan is minimal.

You may actually be able to effectively get a no closing cost loan, by getting the closing costs paid for by the seller, with seller paid concessions. If the seller agrees to pay 3% closing costs, you may get the same loan with a small increase in the loan amount, but no increase in the interest rate, providing the appraisal will allow for the increase in price. If you plan to hold on to the property for any length of time, it would be well worth it to raise the price by a few thousand dollars, instead of paying a higher interest rate.

Keep in mind that "No Closing Costs" is not exactly the same as "No Costs". Depending on the lending banks, some may require the home buyer to pay for appraisal, county recording, mortgage taxes, real estate taxes, pre-paid interests, etc. Always inquire about what specifically are the banks paying on your behalf. A detailed Good Faith Estimate provided by the lending banks can often paint a clearer picture as to what the true costs are.

If you are considering a no closing cost option, ask your loan officer about such topics as mortgage insurance & title fees.

Ask your mortgage professional to show you the mathematical equation for how long it would take you to "break even" with a standard loan program that you are comparing to a no closing cost loan. If you save $50 per month on a no closing cost loan that should have $5,000 worth of closing costs, it would take you over 8 years to "break even" by paying the closing costs up front.

The implication in the advertising of no closing cost loans from some lenders is that the lender is simply “giving away” or not charging for the closing costs. Nothing could be further from the truth. You will pay for these costs in one form or another and an honest, competent mortgage professional such as myself can clear the smoke and mirrors from such advertising.

There is no such thing as a free mortgage. There are people involved with every mortgage transaction. Those people must be paid. If your not paying any closing costs then your paying a higher rate. Often no closing cost loans are contingent on higher rates or the seller gives a credit.

Even when obtaining a no closing cost loan if you are escrowing for your taxes and insurance, you will still either have to bring money to close to set these up or increase your loan amount and roll this money into the loan to set up your tax and insurance escrows. Therefore, in addition to minor items such as recording fees and such that you may still need to pay for you will have to account for money to set up escrow accounts for your property taxes and homeowners insurance. Depending on the time your taxes and insurance are due this can get somewhat high or be very low.

Beware of the lenders that also offer no lender fees or extremely low lender fees. No or low lender fee loans typically have all of the other fees associated with the loan and the upfront savings is very minimal.

No closing cost loans are advertised as a mortgage loan with no cost to you. This is only true for the upfront cost. You will be paying those cost at a much higher interest rate which generally will cost you much more over time than if you would have just taken the lower rate with closing costs.

Comparing Closing Costs - Obviously, a great way to compare closing costs is to compare the GFE (Good Faith Estimate) provided by your mortgage originator. Many times it will still be hard to tell who has the best deal. Another good item to pay attention to is the APR (Annual Percentage Rate) on the TIL (Truth in Lending) form. The APR is the percentage cost of the credit for which you are obtaining on a yearly basis. The APR was designed by the federal government to reveal the true total cost of getting a loan.

When comparing closing costs make sure you compare the actual closing costs to each other and not prepaid items. Prepaid items are things such as homeowners insurance, escrow accounts for taxes, insurancs, and mortgage insurance, and prepaid interest. These figures will be the same everywhere at closing, yet may differ on the Good Faith Estimates due to these figures simply being an estimate up front. The actual closing costs on the good faith estimate, even though only an estimate, should be close to the final numbers that will be on your HUD 1, or settlement statement.

Do not focus exclusively on closing costs: You must compare the rate you are receiving and the closing costs you are paying.

When you are ready to close on your home loan, get a copy of the estimated HUD-1 from your Mortgage Consultant, before your appoinment to sign documents. This will allow you to see all fees involved so there won't be any surprises at the end.

When looking at a Good Faith Estimate(GFE) to determine and compare closing costs, it is important to pay attention to items that are used to calculate the APR you will see in the Truth in Lending Disclosure. They should be checked in the PFC (Paid Finance Charge) Box to the far right side of the Good Faith Estimate(GFE).

Items such as title charges, homeowners insurance, and property tax estimates may differ from on broker's GFE to another. However these items would be identical at closing. The most important section to compare is the fees in the section titled "Items payable in connection with the loan"

One fee that most likely will change is the pre paid interest. This amount will change based on the day of the month you close. If you close early in the month you can get an interest credit but your mortgage payment is due on the first of the following month instead of skipping a month of payments.

When figuring out your loan cost make sure you take into account the money you have spent on your current mortgage. If you are restarting your term again then you have lost those mortgage payments. Granted your principle has reduced as well but its important to look at all costs when taking a new mortgage.