The No Closing Costs Myth
Remember that saying “There is no such thing as a free lunch”.
No matter what you’ve heard, there is no such thing as a No Closing Cost loan unless the seller is paying all your fees. The typical costs a buyer can expect to pay for closing are 3 to 5 % of the amount of the loan depending on your credit and the loan program you select.
When you sit and think about the cost in real dollars, do you really expect a Lender, Broker, Bank is going to pay 3-5% of your closing costs when they are normally capped at 4 to 6% profit on your loan?
Not very likely unless they’re going out of business really soon!
So what does this mean? Usually, when you see this advertised, it does not include 3rd party fees. So, what are third party fees? Oh……they include; appraisal, home inspection, pest inspection, well inspection, survey, Attorney (should you use one) all the title fees, all the government taxes, the filing fee, loan processing fee, courier service, over night charges, property taxes, home owner insurance and on occasion (since they are provided by third parties), credit report, wire transfer fee and flood certification.
Really, they can include whatever is not a fee charged by them. So, in the future be leery of any “no closing cost” offer and get specific details on what is actually paid! Sometimes, you can get lucky and have a lender, broker, banker that does title in house and as a result they may indeed cover some of the title fees. But don’t expect they will cover more than they need to in order to meet there minimal obligation to close your loan and still maximize their profit.
Yes, you will indeed typically pay a much higher rate of interest for this type of loan, so do your homework because typically when you see the words “No Closing Costs” advertised with a Lender/Broker/Banker, it’s code for “We’re going to sell you right into a higher interest rate and more profit for us for you having the privilege of us waiving a couple hundred bucks in fees for you.”