Are No-Closing-Cost Mortgage Loans Still Available?

Reader Question: “I do not have a lot of money to pay for closing costs on a mortgage. I have heard that in the past some lenders offered loans with no closing costs for first-time buyers. Are these still available? And if so, where would I go to find them?”

Whether you realize it or not, you answered your own question already. You used the phrase “in the past,” which is sort of what has happened with no-closing-cost mortgage loans. This type of financing was fairly common in the past, but it’s harder to come by today. This is mainly the result of the economic recession we have had. With that being said, I would predict that no-closing-cost loans will be making a “comeback” in the coming months.

Let me offer a bit of background, for readers who are not familiar with this topic.

What Are Closing Costs Anyway?

When you take out a mortgage loan to pay for a home, you will pay a variety of fees and charges on the loan. They include processing fees, legal fees, origination fees … you get the picture. Lots of little add-on charges. Collectively, these are referred to as closings costs, because you pay them when you close on the loan (during the final settlement / closing procedures). On average, these costs can add to about $3,000. This number will vary, depending on the amount of the loan and the state where you purchase the home.

In the past, some mortgage lenders would offer to waive these fees, in order to attract borrowers. As you might imagine, this is referred to as a no-closing-cost mortgage loan. In most cases, however, the lender would make up for this financial loss (on their part) by charging a higher interest rate. And depending on the rate, the borrower might end up paying more over the long run than what they save up front.

Are These Mortgage Loans Still Available?

So let’s move on to the next part of your question. Can you still find no-closing-cost loans these days, and if so where should you go to learn more? In our current and troubled economy, it’s going to be a lot harder to find a lender that’s willing to waive their closing costs on a mortgage loan. And if they do waive the fees, you be sure they’ll make up for it through the interest rate in some way. So with this type of loan, you are essentially transferring some of the upfront costs onto your monthly mortgage payments.

This is certainly a viable option for some people, especially first-time buyers who don’t have a lot of cash for these upfront fees. But you need to realize what is happening with this approach. Basically, you are increasing your monthly payments in order to lower the upfront payment.

In order to find a no closing cost mortgage loan, you would have to do one of two things — talk to a broker, or go directly to the lenders and see what they have available. You might also want to do a Google search for that phrase and then scan the results for well-known lenders such as Wells Fargo and Chase. I don’t know if these lenders will waive closing costs, but that’s a good way to find out.

Over time, as we begin to put this economic mess behind us, I’d be willing to bet that more lenders will start offering this option again. It’s the same thing with subprime loans for people with bad credit. They have gone away for the time being, but they will probably make a comeback at some future point in time. Good old-fashioned greed will bring all of these mortgage products back, back eventually.

I did a little research to get you started, with some of the big national lenders in the U.S. Here is what I found. Just keep in mind that a local lender might be able to give you better options than a national name, so be sure to shop around.

• Wells Fargo — They have a mortgage product called the Closing Cost Saver program. One of the advertised benefits is that buyers can pay little or no money out-of-pocket at closing. I don’t know if they are still offering this, or what the stipulations are, but you can check it out for yourself. Learn more here
• Chase Mortgage — They offer a program that’s designed to save you money at closing by reducing the fees you have to pay. They claim that it can save you up to $2,000 on closing costs. Learn more here
• Citi Mortgage — I could not find anything on their website, but feel free to do your own research.
• Bank of America — Couldn’t find anything here either.

I hope this gets you pointed in the right direction. My advice is to save enough money so you can pay the fees at closing, in order to keep your interest rate low. You’ll save money in the long run if you do that, and you’ll keep your monthly mortgage payments at the lowest possible level (given your credit score and other qualifying factors).

This article answers the question: What is a no closing cost mortgage loan, and where can I find one? If you have a question of your own, click on the “Ask a Question” button at the top of this blog to send it to us. We will post a response right here on the blog.