Mortgage Basics: Information for First Time Home Buyers

No Cost Loans

Nobody would ever believe a mechanic who advertised that they would fix cars for free, so why do brokers or lenders expect the public to believe that they are willing to do "no cost" loans. Loans cost a certain amount of money to do, there is processing time (time and manpower devoted to getting your mortgage paperwork, putting it together to send to a lender, shopping and choosing a lender to get the best program and rate). There are also fees incurred such as appraisal, lender and title fees. All of these things must be paid somehow, so if you are offered a "no cost loan," expect to be paying for those costs somewhere, usually hidden on the back in the form of a higher interest rate. There are loan programs that cover such costs in the actual loan. 100% purchases keep borrowers from having to pay any downpayment. We even have 107% purchase programs that will roll the closing costs into the loan. To some borrowers, not having those fees upfront makes more sense, and they would prefer to have the cost spread out in the interest rate or loan amount. However, we do believe that all borrowers should be aware of how those fees are being paid. Therefore, we do not advertise them as "no cost," instead we explain how the loan is covering those costs.