Refinance Your Home As A Zero Closing Cost Mortgage

Zero Closing Cost Mortgages

A zero closing cost mortgage is a mortgage for which all closing costs are paid by the mortgage lender rather than the borrower. In return for paying closing costs on behalf of the borrower, the mortgage lender increases the interest rate on the loan, typically 12.5 basis points (0.125%).

Consumers Report Higher Loan Closing Costs

According to’s annual closing cost survey, the costs of a typical mortgage are increasing.

Closing costs increased about 2% last year. Banks say costs are rising due to new regulations that require more manpower. Many have chosen to pass their higher costs on to their consumers.

As a mortgage borrower, however, the amount you pay in closing costs will depend on your specific mortgage loan. The type of mortgage you use will affect your costs; just like the amount of your loan and the state in which you live.

VA loans, for example, are sometimes more expensive than USDA loans; and streamlining refinance programs that don’t require a home appraisal can help keep your costs down.

Regardless of your loan type, however, you have ways to minimize what your purchase loan or refinance will cost you.

It helps to have a good strategy.

Check your new rate (May 18, 2021)

What are the mortgage closing costs?

Mortgage closing costs are the costs accompanying a mortgage transaction. These are fees assessed specifically because a mortgage transaction is in progress.

All mortgages have costs. These costs can be broken down into two categories: lender fees and third party fees.

Lender’s fees

Lender fees are fees paid to the lender, specifically for the service of managing your loan. The lender’s fee is shown as “Adjusted Original Fee” on your good faith estimate.

When comparing the fees of lenders from two or more banks, it is best to ignore the individual line items. Instead, compare the are set-up costs indicated.

According to, lender fees are up almost 10% from last year.

Third Party Fees

The second type of closing costs is a third party fee.

Third party fees are closing costs paid to a company other than your lender; and they are listed in the section called “All other settlement services”.

Third-party fees include appraisal fees, costs for a credit report, and fees paid to a securities company that delivers your mortgage settlement.

Third party fees are beyond the control of the mortgage lender and will be the same regardless of which lender you choose. Therefore, do not select your lender on the basis of third party fee estimates.

Since last year, mortgage fees for third parties have fallen 1.5%.

Check your new rate (May 18, 2021)

Reduce your loan closing costs

With current mortgage rates low, more than five million US households are currently potentially eligible for refinancing.

There are also many reasons to refinance.

  • You can lower your mortgage rate and get lower monthly payments
  • You can switch from a fixed rate to an ARM, or vice versa
  • You can reduce your loan term to 15 years, saving a lot on mortgage interest
  • You can cancel your mortgage insurance premiums immediately
  • You can withdraw money to pay for renovations or other needs

You can pretty much do whatever with refinancing. The key is not to let closing costs put you off.

Yes, all mortgage refinancing does require closing costs. But that doesn’t mean the refinance is going to lose the deal for you.

You have the option of lowering your closing costs on any mortgage refinance, and often you can ask your lender to eliminate closing costs altogether.

Remember that as a borrower you have three options for paying your bank closing costs.

  1. You can pay your fees in cash at closing
  2. You can add / roll your closing costs to your loan balance (for refinancings)
  3. You can waive your closing costs through a mortgage with no closing costs

Each method has its advantages.

When you pay your closing cash costs, you often have access to the lowest combination of mortgage rate and loan amount. As your mortgage rate is reduced, you’ll pay less interest to your lender over the life of the loan, whether it’s a 30-year fixed loan, 15-year fixed rate, or whatever.

When you choose to “defer your fees” in your loan, funds in your bank account are not used to close your mortgage. For households creating an emergency cash reserve or for families wanting to keep their bank account balances high, it may be a good idea to recalculate your costs.

Finally, you can choose to waive your closing costs altogether. You do this through a mortgage with no closing costs.

No-closing costs mortgages are exactly what they sound like – they are mortgages for which the owner pays absolutely no closing costs. With a mortgage with no closing costs, nothing is added to your loan balance, and nothing is “hidden” in the numbers.

All costs of a loan with no closing costs are paid by the lender. None are paid by you. In exchange for paying your fees, the bank will ask you to accept a mortgage rate that is slightly higher than current mortgage rate. The increase is typically 12.5 basis points (0.125%) for a medium-sized loan.

To illustrate how this works, let’s say that a homeowner in Loudoun County, Virginia wants to refinance to the local mortgage limit of $ 625,500.

In this example, rolling the closing costs into the loan cannot be an option because the new loan size would exceed the maximum allowable loan size. Thus, the owner opts instead for a mortgage without closing costs.

Assuming the current mortgage rate is 3.50%, the homeowner would get a rate close to 3.625% from their lender and, in return, the closing costs would be waived.

Note that there is no deception with a loan without closing costs. Your closing costs are not “built in” to your loan balance, which increases the amount you owe on your home; and your loan terms don’t change because your fees are paid by the lender.

For many, refinancing with no closing costs is the safest and smartest way to refi.

Conventional mortgages and closing costs

Conventional mortgages through Fannie Mae and Freddie Mac offer the least opportunity to save on closing costs.

In general, conventional mortgage rates are higher compared to FHA loans and VA loans; and documentation requirements may also be more stringent.

Due to the additional paperwork, conventional loans often require more labor from your lender, which increases the likelihood of fees.

When you want to save on a conventional mortgage or refinance, your best bet is to look for a low or no closing cost mortgage.

FHA Mortgages and Closing Costs

For homeowners with existing FHA loans, zero closing cost loans are common – especially when used in conjunction with the Refinance simplified by the FHA program.

Official FHA guidelines state that FHA Streamline Refinance loans do not require a home appraisal or credit score check.

Since these items are not required, they do not appear as a third party charge on a good faith estimate, which reduces the overall loan costs.

When you compare mortgage lenders and their rates for FHA Streamline refinance, be sure to educate yourself about your zero closing cost options. FHA refinances are among the most affordable ways to lower your monthly payments.

VA Mortgages and Closing Costs

Similar to FHA loans, borrowers with a VA mortgage loan have several ways to reduce their loan closing costs. Using VA’s streamlining refinance program – the Interest Rate Reduction Refinance Loan (IRRRL) – is one such way.

With the VA IRRRL, home appraisals are not required, credit checks are not performed, and closings are typically scheduled within 25 days. Waiving the appraisal saves up to $ 500, and faster closings lead to cheaper mortgage rate locks.

Zero-closing cost mortgages can eliminate the remaining VA loan costs that are assessed, but the costs are generally low for this type of refinance.

What are the current mortgage rates?

Don’t let the fear of closing costs keep you from pursuing a refinance. The benefits of refinancing often outweigh the costs, especially when there is no cost.

Get current mortgage rates now. Your Social Security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Check your new rate (May 18, 2021)

About Jon Moses

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