Mind-Blowing! Right? What’s called a No Closing Cost Home Mortgage Loan isn’t necessarily rare in Washington State. To think you could close on a home loan in Seattle or Bellevue without the heavy burden of closing costs. Maybe you’ve already heard no closing cost mortgage programs advertised. Maybe you heard No Mortgage Closing Cost loans were a thing of the past, a bi-product of the early 90’s housing boom? Do they even exist? If you are considering a no closing cost mortgage option, It doesn’t matter which camp you’re in, you need to know what a no closing cost home mortgage really means. Most often, no “mortgage fee” or no closing cost home mortgages simply mean your mortgage lender is offering a high enough rate to cover the costs and fees associated with closing on the home.  Let’s take a look at what closing costs may include, and what home mortgages in Washington State really break down to in dollars and cents.

What are “Closing Costs?”

Zero down, Low or No Closing Costs… Let’s face it, we tend to throw around a lot of confusing terms. So let’s make it simple, when we talk about closing costs we’re talking about the fees and charges associated with the origination and maintenance of the loan. Common closing costs may include,

• Loan Origination Fees – The fee your lender charges for putting the loan together, generally expressed as a percentage of the purchase price.
• Points or loan discounts – In order to “buy down” or reduce the interest rate, lenders may charge this fee at closing. Expressed as a percentage, one point translates to 1 percent of the purchase price.
• Home inspection – For the home buyer, this fee provides peace of mind. The home inspection allows a state licensed inspector to “kick the tires” and  take a close look at the foundation, roof, plumbing, HVAC, electrical and other household systems. 
• Appraisal – Fee charged by a licensed appraiser to evaluate and compare the property to similar homes in the area establishing the real market value. 
• Credit Report – The fee charged by your lender to pull and review your credit history.
• PMI Premiums – Private Mortgage Insurance or PMI may be assessed if you put less than 20% of the homes purchase price as a down payment. Private Mortgage Insurance Insures the Lender in case of default on the loan.
• Property Tax Escrow – Depending on where you live, you may be required to escrow property tax payments at the time of purchase. 
• Land Survey – Before the purchase of your home, the lender may require a new plat (map) of survey. Drawn by a licensed surveyor, this map clearly marks property lines and reveals any possible easements or encroachments. You might also want to consider a more technical boundary survey as it can provide to you, and the bank, an idea for the total size of your land.
• Title fees – Title Fees cover a variety of activities associated with the transfer of title at purchase. A title search will be performed to ensure a clean chain of title.  Fees may also be applied for the recording process, or for title insurance.  
• Deed Recording – A fee is charged to record the property deed with the county where the property lies.
• Notary Fees – Charged by a licensed notary who acts as a kind of official witness in legal processes such as contract signings, certification of the deed or other documents required by your jurisdiction. When it’s all said and done closing costs can end up ranging between 1 and 3% of the home value or even more. For a house that costs $350,000, that may amount to as much as $10,500, and could even conceivably be higher. That’s a lot of money to be paid out. As you can see, most of those fees could never actually go away.

Saving for Your Closing Costs

With home values on the rise and no end in site, the thought of saving enough money for closing costs can be a bit daunting for most Washington State home buyers. Afterall, in addition to closing costs, the average conventional thirty year fixed home mortgage requires a 3.5 – 5% down payment. In Seattle, where the median home price is just over $700,000, that’s around $35,000. When you add that to the closing costs the idea of a “no fee” mortgage may sound like a tantalizing option for your home ownership dreams. However, in the end, keep in mind that it may be just like the old adage warns, You always get what you pay for.

Whether you pay for it up front, “out of pocket,” or amortized over the life of the loan, it should be clear that there is no way to get rid of loan closing costs, but with careful attention you may be able to defray, or avoid personally paying for them altogether. Don’t lose hope, there are other options which have been created to ease the initial financial burden of home purchase.

Your Lender

The first place to go is your mortgage lender.  Your lender may advertise a no closing cost home mortgage by offering a slightly higher interest rate, thus covering the closing costs of the mortgage. Don’t forget this will increase your monthly payments over the life of the loan.

Seller “Concessions”

In Seattle Metro’s emerging “buyer’s” market, asking the seller to make some contributions may be a good tactic for avoiding closing costs. This would allow for the seller to contribute all or a portion of your closing costs.  It is important to enlist the help of a reputable Real Estate Professional to discuss the implications and the best way to approach negotiations.

VA LOANS

The original Servicemen’s Readjustment Act of 1944 provided a host of benefits including the VA Home Loan Program for current and former members of the armed services. The bill even extends privileges to spouses in certain circumstances. Specifically, the VA home loan program provides funding for the down payment. However it is important to note that the veteran will be responsible for closing costs. As with other loans, the seller or lender can offer to pay 100% of the closing costs up to 4% of the total home value in the form of credits or concessions.

GIFTING

With home values on the rise, it should come as no surprise that the national association of realtors reported that somewhere around 25% of first time home buyers use cash gifts towards the purchase of a home. These days most home loan programs allow for the practice of gifting. Simply put, gifting is the idea of allowing a third party to provide for all or a portion of the closing costs. 

While all loan programs have different demands, the main thing to remember is that you will be required to supply your lender with what is known as a gift letter.  A simple letter from the gift giver stating the fact that the money is a gift, and that there is no expectation of repayment. With so many financial commitments, this can mean literally everything to the first time homebuyer.

Summary

When it comes down to it, it’s vitally important to remember what closing costs are, who pays, and who gets paid, right? I mean let’s be honest, people need to get paid, and everyone pays one way or the other when financing any purchase. Whether home loans or credit cards are the topic, credit is never free. Do you have more questions about home mortgages? Let the professional mortgage company help you understand the ins and outs of closing costs and more.

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Donald Phillips