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No Cost Mortgage?

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badassmonkey11
Valued Member

No Cost Mortgage?

Has anyone has any experiences with a no cost mortgage? I am looking to buy in the next few months as I am tired of renting and my 1hr one way commute to work, but as anyone can imagine it takes much longer to save when you are "blowing" money on rent. I have read a few things on it, but looks as if very few lenders have that as an option?

 

I am only looking for a 115k to 125k home in FL with excellend credit (all of my "baddies" finally came off (I was able to get them off early Smiley Happy ) scores of EX:784, EX:770, TU: 765 and I already know they will be higher than that by the time i actually apply for a loan. I will only be putting 5% down and I only plan on staying in the home for about 5 years or so (I understand all loans are different and come with pros and cons).

 

Can anyone give any advice on this type of loan?

Message 1 of 9
8 REPLIES 8
ShanetheMortgageMan
Super Contributor

Re: No Cost Mortgage?

Pretty much every lender can offer a "no cost" mortgage as long as your loan amount is large enough.  The way it works is this.  Say you qualify for a 4.250% rate with normal closing costs, instead of accepting 4.250% you could accept a higher rate, say 4.500%, and you'd get a lender credit to help pay your closing costs in the amount of 1% of your loan amount (these numbers are just hypothetical, mind you).  So if you are financing $300,000 then 1% of that is $3k.  If you are financing $100,000 then 1% of that is $1k.  At 4.750% you could get a 2% lender credit towards your closing costs, etc. 

 

So to have it be "no cost" the amount of the lender credit needs to be equal to your closing costs.  Florida has a little higher closing costs than other states because buyers have to pay a state mortgage tax.  Just a rough estimate, but you should figure total closing costs on your loan would be around $4,500-5k.  So you can see to get that much of a lender credit to pay the closing costs with, you'd have to accept an interest rate much higher than what you could qualify for if you just wanted to pay your own closing costs.  Depending on how the market is where you are buying, you may be able to negotiate in your contract that the seller gives you a closing cost credit.  Assuming you are doing conventional financing with 5% down, the seller is permitted to give you up to a 3% closing cost credit - or on a $125k sales price that'd be $3,750.  You could use that, and accept a little higher rate for a lender credit, to be able to cover the closing costs.

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Message 2 of 9
ezdriver
Senior Contributor

Re: No Cost Mortgage?

A more accurate description for what the OP seeks is NO CASH FROM BUYER mortgage deal. There is always a cost to the borrower.

Message 3 of 9
badassmonkey11
Valued Member

Re: No Cost Mortgage?

I will definitely be going conventional (PMI reasons), but just so I am clear is it also possible to combine a higher interest rate (to cover some closing costs) as well as "add on" to the sales price to help cover closing costs (I.e. purchase home for 123k with 3k going towards closing costs essentially "rolling" them in the mortgage)? I never seem to find a straight answer as the market is constantly changing. Again, there are pros and cons to everything and in my situation/future plans I do believe this is the best way to go.

 

Also, what are PMI rates based on? Credit? Credit and LTV amount? I can't seem to get straight answers on that either. I have been proactively researching for 18 months, so that there aren't any surprises (hopefully) on how much my payment will be. I am just not sure if I should factor .6% / .9% of loan etc. for this portion of my mortgage.

Message 4 of 9
badassmonkey11
Valued Member

Re: No Cost Mortgage?

Yes I understand I will be making up for the costs in the mortgage itself (higher interest rate etc.), so it is that I am interested in "saving" up-front cash on-hand. I am trying to keep as much in the bank as possible after my downpayment and initial deposits.

Message 5 of 9
ezdriver
Senior Contributor

Re: No Cost Mortgage?


@badassmonkey11 wrote:

I will definitely be going conventional (PMI reasons), but just so I am clear is it also possible to combine a higher interest rate (to cover some closing costs) as well as "add on" to the sales price to help cover closing costs (I.e. purchase home for 123k with 3k going towards closing costs essentially "rolling" them in the mortgage)? I never seem to find a straight answer as the market is constantly changing. Again, there are pros and cons to everything and in my situation/future plans I do believe this is the best way to go.

 

Also, what are PMI rates based on? Credit? Credit and LTV amount? I can't seem to get straight answers on that either. I have been proactively researching for 18 months, so that there aren't any surprises (hopefully) on how much my payment will be. I am just not sure if I should factor .6% / .9% of loan etc. for this portion of my mortgage.


 

Like any other type of insurance premium, mortgage insurance premiums are based on many factors. Some example factors are: LTV, borrower credit, type of property, type of mortgage, etc. so there is no one formula or standard. It depends.

Message 6 of 9
ShanetheMortgageMan
Super Contributor

Re: No Cost Mortgage?


@badassmonkey11 wrote:

I will definitely be going conventional (PMI reasons), but just so I am clear is it also possible to combine a higher interest rate (to cover some closing costs) as well as "add on" to the sales price to help cover closing costs (I.e. purchase home for 123k with 3k going towards closing costs essentially "rolling" them in the mortgage)? I never seem to find a straight answer as the market is constantly changing. Again, there are pros and cons to everything and in my situation/future plans I do believe this is the best way to go.

 

Also, what are PMI rates based on? Credit? Credit and LTV amount? I can't seem to get straight answers on that either. I have been proactively researching for 18 months, so that there aren't any surprises (hopefully) on how much my payment will be. I am just not sure if I should factor .6% / .9% of loan etc. for this portion of my mortgage.


Yes, it's possible to combine both.

 

At a 760+ score, 95% financing, you could expect an annual PMI premium of .54%.  http://www.radian.biz/sfc/servlet.shepherd/version/download/068C0000001dvg9IAA is a handy little chart in .pdf format from one of the PMI companies we use.  You can also pay a single premium instead (listed on the bottom half of that .pdf) and then never have to pay the annual amount, but the single premium is part of the closing costs.

Free Mortgage Advice & Pre-Approvals (FHA, VA, USDA, Fannie, Freddie, Non-Prime, Construction, Renovation/Rehab, Commercial) since 2002
Located in Southern California and lending in all 50 states
Message 7 of 9
badassmonkey11
Valued Member

Re: No Cost Mortgage?

That is an excellent tool. Thank you for the info!

Message 8 of 9
Walt_K
Senior Contributor

Re: No Cost Mortgage?


@badassmonkey11 wrote:

I will definitely be going conventional (PMI reasons), but just so I am clear is it also possible to combine a higher interest rate (to cover some closing costs) as well as "add on" to the sales price to help cover closing costs (I.e. purchase home for 123k with 3k going towards closing costs essentially "rolling" them in the mortgage)? I never seem to find a straight answer as the market is constantly changing. Again, there are pros and cons to everything and in my situation/future plans I do believe this is the best way to go.

 

Also, what are PMI rates based on? Credit? Credit and LTV amount? I can't seem to get straight answers on that either. I have been proactively researching for 18 months, so that there aren't any surprises (hopefully) on how much my payment will be. I am just not sure if I should factor .6% / .9% of loan etc. for this portion of my mortgage.


You could do that by seeking a seller credit.  Seller shouldn't care too much whether the offer is $123K or $126K with a $3K credit toward closing.  It might have some slight difference in tax implications, but they are basically the same offer.


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