No Cost/Fee Loans:

What is a no cost/fee loan?

A "True No Cost/Fee Loan" is when the Borrower pays $0.00 in closing costs. All the Closing Costs are paid by the Lender/Broker at closing. Closing Costs are classified into three groups:

1. Lender Fees: Origination, Processing, Admin., Credit Report, Underwriting, Tax Service, Wire, and Flood. All these fees are controlled by the lender.

2. Title Fees: Closing Fee, Title Insurance, Endorsements, Reconveyance, Recording, Processing, Doc Prep., City/County/State Stamps Fee (Florida only), and other misc. fees. These are third party fees. The borrower may choose the title company for closing.

3. Appraisal: The borrower may choose the Appraiser. If this is a purchase the borrower should also have the home inspected before it is purchased. These are third party fees.

Other costs at closing are "Prepaid Items". These are Hazard Insurance Premium, Property Taxes, and Accrued Interest. These are not Closing Cost, but are part of the settlement charges on the Settlement Statement (HUD).

Therefore on a True No Fee/Cost Loan the Lender will give a Lender/Broker Credit for the total of the Lender, Title, and Appraisal Fees. For example if the three groups total $4,500.00 for Closing Cost on the HUD, you should also see the Lender/Broker credit for $4,500.00 on the HUD to offset the Closing Cost.

The Big Lie in the mortgage industry is when the Loan Officer adds your Closing Cost to the loan and tells you it is a No Fee/Cost Loan. This is not true. You are still paying the Closing Cost over the life of the loan; you just did not have to use any out-of-pocket cash to pay your Closing Cost at closing.

Is it right for me?

Each case is unique. As a general rule, when rates are up in the Spring and Summer I may recommend a No Cost or Low Cost Loan to a Borrower and refinance them in the Winter when rates go down. For example a client of mine wanted a 30 year fixed at 6.25% for a purchase in July of 2006. At that point in time I would have to buy down to get this rate, therefore his closing cost would have been many thousands of dollars. I recommended a No Cost Loan at a rate of 6.75% being confident the rates what drop in the winter. In November 2006 I refinanced his loan at 6.25% with another No Cost Loan. He could have paid some closing cost and have a rate at 5.875%, but he chose the 6.25% (which he originally wanted) and save thousands of dollars again. Later in Jan 2008 he did another No Cost Loan and got a 5.625% 30 year fixed. He is a satisfied customer.

Another good case for a No Cost Loan is when the buyer of a home only keeps the house between 1 and 3 years. These loans should always be a No Cost Loan.

The last case is when the Borrower has an ARM at a high rate or a fixed at a high rate. For example if you have a 30 year fixed at 6.875% and you can get a No Cost Loan at a 30 year fixed at 6.50% with a no pre-payment penalty you should take it. If rate go down some more do another No Cost Loan. I had a client that did 4 No Cost Loans from 6.50% down to 5.25% on a 30 year fixed with no PPP.

We also offer mortgage consulting for those who are looking and/or have signed with another mortgage company. We will be your "advocate" to help protect you in a "bait and switch situation" which could save you thousands of dollars.