For both refinance and purchase loans, a typical borrower may pay between three to six percent of their loan amount in closing costs. The actual amount will vary based on a number of different factors, but the bottom line is that these costs can equate to thousands of dollars for a home loan applicant. Closing costs may include everything from title charges and collections to set up the escrow account to prepaid insurance, appraisal fees, inspection fees and more. Finding a zero closing cost mortgage could help you to save a significant amount of money, and the good news is that you actually could make this a reality for your next mortgage.
Decreasing Closing Costs
There are essentially two different ways that you can achieve a zero closing cost mortgage or otherwise come very close to paying no closing costs. The first option is to take steps to decrease your closing costs. First, you can negotiate with your seller to pay a portion of your closing costs, and some sellers may agree to pay one or two percent, if not more.
You may also work with your lender to receive a slightly higher interest rate in exchange for a rebate at closing. Some loan programs may also waive appraisal fees. When you include a combination of each of these options for your next transaction, you may have most or all of your loan fees paid for.
Finding a Zero Cost Loan Program
Another idea is to apply for a true zero closing cost loan program. These are unique loan programs where the lender may allow you to roll the closing costs into the loan amount. This is typically only available with refinance loans rather than with purchase loans. You essentially will use equity from your refinance to pay for your closing costs so that you do not have to come to the closing table with funds.
There are also zero cost loan programs for purchases, and these typically have the compensating factor of giving you a higher interest rate. This may result in a higher mortgage payment, but the benefit is that you will not have to pay any costs at closing. If you are strapped for cash or do not want to pour your assets into paying for closing costs, this is a great option.
As you can see, you do have a few options for decreasing or eliminating your closing costs altogether. You may consider shopping around to compare the different options. Keep in mind that different lenders as well as different title companies may charge different fees. It may be wise to work with a mortgage representative to more easily compare the options, and you can set up an appointment to speak with a professional today. Speak with your trusted real estate agent for a referral.