So-called “No Cost Loans” where is the catch?
There’s a lot of marketing out there to help make some loan-jockey’s phone ring but nothing brings them in faster than the “no cost loan”. I’ve got news for everyone and it’s a secret no one will share with you: There’s no such thing as a no cost loan!
I’ve been in the mortgage business for 13 years and I pay closing costs on my own loans! The last time I checked, neither the Title Company, the Appraiser, nor the Credit Reporting Agencies worked for free. So where does this alleged “no cost loan” jargon come from? I’ve developed and simple yet strikingly easy chart to explain the process.
In a nutshell, there are only three variables to consider: Loan Amount, Interest Rate, and Cash in/out. Assuming you agree there are in fact closing costs to deal with, you get to pick two sides and the remaining side defines how your costs will be handled.
Examples
1. LOAN AMOUNT: You can increase the loan amount if you have enough equity to roll all the closing costs into your loan; doing so allows you to bring in NO cash at closing. Hence the words ‘no cost loan.’
2. INTEREST RATE: If you want the lowest rate, there will be extra fees called origination fees or discount points. If you’re willing to accept a higher rate, it will be used to cover some or all of the closing costs.
3. CASH: If you’re willing to pay closing costs in cash at closing, you can get the lowest rate and/or loan amount.
“No costs loans” are smart for home owners in some situations. Both Todd and Tyler have a unique software program that can run the different loan scenarios side-by-side so you can make an educated decision about choosing the best option for you.
What you are being sold by others may not be in your best interest. What the loan hacks calling you, emailing you, and generally pestering you are really saying is “we’re going to charge you everything we normally would, but we’re going to roll it into the new loan so you can get a NO CASH REQUIRED loan”. Unfortunately many unscrupulous lenders take that same opportunity to stick it to you. The lender makes a huge profit - simply because it’s hard to see the figures - and that’s what they’re hoping.
You’ve heard the adage - There’s no guaranteed in this life except death and taxes. Add to that …and closing costs on my next loan. The question really should be do you want to pay now or pay later? Be a smart consumer and call us for your next loan!!!
Start the discussion by leaving a comment