April 2, 2018
Orion’s AEs are often asked, “Is there really such a thing as a no closing costs mortgage?” We know that our brokers are being asked by clients about some advertising claims out there.
We encourage our brokers to tell their clients that all mortgages have costs associated with closing. Closing costs are fees that the borrower must pay to third party vendors who provide services needed to get the loan cleared to close. These fees are typically collected by the lender and paid to the vendors by the settlement agent. These fees include Appraisal, Lenders Title Insurance, Tax Survey, Credit Report, Flood Certificate, Municipal Lien Certificate, Settlement Agent Fee, Origination Fee, Mortgage Recording Fee, Property Survey, Tax Service Fee and Owners Title Insurance. Although some of these fees are specific to type the type of loan.
Experienced brokers usually explain that what a “no closing costs” loan really means is that a borrower still needs to pay the fees, but they won’t have to come to the closing with the cash to pay them. No closing cost mortgages are appealing to borrowers who don’t have a lot of extra money for upfront fees. It is important to understand that the closing costs don’t disappear, they are just reallocated.
Orion’s brokers generally know that there are two ways to redistribute the fees. Finance the closing costs, as a result the loan amount will increase. Or accept a slightly higher interest rate, and Orion will give a credit for closing costs.
No closing costs options are available on both purchase and refinance transactions. The costs cannot be financed into the loan on a purchase transaction, however, but can be paid through an increased interest rate. Ask your Orion AE for a comparison between a loan with and a loan without costs to help determine which direction to take. Factors to consider are how long the owner plans on living in the house, the size of the loan, and the current rate environment.
Not every lender offers this type of loan and not every borrower is eligible for a no closing costs loan. An Orion AE can go through the programs and help determine which option is best!