SOME CARD INFO MAY BE OUTDATED
This page includes information about these cards, currently unavailable on NerdWallet. The information has been collected by NerdWallet and has not been provided or reviewed by the card issuer.
With closing costs ranging from 2% to 6% of the loan amount when you're buying a home, a "no-closing-cost" mortgage may sound like the ultimate money saver.
But, sorry to break it to you, the closing costs don't vanish. Rather, you pay them over time instead of as a lump sum at the closing table.
Here's how to figure out whether a no-closing-cost mortgage is right in your situation.
How a no-closing-cost mortgage works
Depending on the circumstances, a no-closing-cost mortgage could be a smart move — or a costly one.
Did you know...
Closing costs are the expenses and fees for services required to finalize a home purchase. When buying a home with a mortgage, they include a lender's origination charge and fees for the appraisal, title insurance, government recording and other services. There are two ways a no-closing-cost mortgage is structured:
The costs are added to your loan: You finance the costs as part of your mortgage and pay for them, with interest, over the full loan term, such as 15 or 30 years.
The costs are covered through a higher interest rate: In exchange for covering the costs, the lender will charge a higher interest rate on the mortgage.
Either way, you'll pay for the closing costs through a higher monthly mortgage payment.
» MORE: Closing costs calculator
Pros and cons of a no-closing-cost mortgage
Before you skip the closing costs, make sure you understand the tradeoffs.
| Pros | Cons |
|---|---|
| Reduces upfront costs | Typically results in a higher interest rate |
| Frees up cash for moving expenses, investments, or homeownership costs like furniture and repairs | Increases your loan amount when closing costs are rolled in, raising your total interest over time |
| May make financial sense if you plan to refinance within a few years, as the upfront savings could outweigh the higher interest rate | A larger mortgage balance means slower equity growth |
How to reduce closing costs
Before you pull the trigger on a no-closing-cost loan, consider options to lower your closing costs:
Ask the seller to pay some of your closing costs. Sellers are more likely to agree to pay some of the buyer's closing costs when there are more homes for sale than there are buyers or when the property has languished on the market for a long time. Work with your real estate agent to understand the local market and what you may be able to negotiate with a seller.
Explore first-time home buyer programs. Many state housing finance agencies and some local governments offer first-time home buyer programs that include grants and forgivable loans to cover closing costs.
Shop around for services: You may save money by comparison shopping for some of the services covered by closing costs, such as title insurance. Your Loan Estimate will list all the closing costs and identify the services you can shop for.
Did you know...
A lender must provide a Loan Estimate within three business days of receiving your application. Is a no-closing-cost mortgage right for you?
A no-closing-cost mortgage might be worth it if it gets you over the final hurdle to buying your first home.
Just make sure you understand how you’ll be covering those costs, how financing them or paying a higher interest rate will impact your monthly mortgage payment and how paying the costs over time will add up.
For instance, compare the total costs of a no-closing-cost mortgage with a traditional home loan. You may realize that the extra monthly expense may not be an issue if you plan to sell the house or refinance the mortgage in three to five years. On the other hand, if you stay for a long period without refinancing, that extra bit you owe each month will end up costing more than if you had paid the closing costs upfront.
NerdWallet writer Robin Rothstein contributed to this story.
Explore more on
