Is There Such a Thing as a “No Closing Cost” Loan?

No closing cost loan

Is there such a thing as a “no closing cost” loan?

Whether buying a new home or refinancing your current mortgage, you’ll most likely find plenty of lenders advertising a “no closing cost” loan.

For many who are short on cash,  “no closing cost” terms may seem like a great deal, but is there really such a thing as a “no closing cost” loan?

Have you ever heard that “there is no such thing as a free lunch?”. Well, this applies to home loans as well. Every time you hear “no closing cost” in reference to a home loan, please remember that even though you will not have to pay that specific cash amount upfront during the closing time, you will eventually be charged for that amount.

You’ll either pay a higher interest rate over the course of your loan or your lender will add that amount into the actual loan balance, which you’ll be paying off over the duration of your loan.

If you are considering a purchasing a house or a refinancing, please run the numbers first and see if “financing” your closing cost will make financial sense. Often you will be better off paying your closing cost with cash. Rolling closing costs into the loan and paying interest on it or accepting a higher interest rate will, most likely, cost you more in the long run.

As a rule of thumb, a “no closing cost” loan will make sense for those who either: do not have cash to pay up front, or those who are not planning to stay in their home for more than 5 years.

If you are buying a home that you hope to live in for the next decade or possibly a lifetime, then you are better off saving enough cash to pay for your closing cost up front.

Having and sticking to a solid budget will help you with buying and keeping your home! If you are considering purchasing a home or refinancing, start with a solid budget first. Make budgetary adjustments in order to save cash for your closing cost, and make sure that the home you’re considering will not exceed 25% – 30% of your gross annual income!

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