No closing cost loans are usually requested by buyers with little funds to bring to closing. The phrase is somewhat misleading as there are always closing costs. The way those expenses are recouped by a lender may be structured differently. The following is an overview of Philadelphia no closing cost loans, what you should be aware of, and how it compares to options with closing costs.
What Are No Closing Cost Loans
Fees apply to every loan because lenders have expenses related to issuing loans, compensating brokers, etc. In a usual loan, the specific charges are billed and categorized as closing costs. This results in more cash due at closing, which may not be affordable for all borrowers. No closing cost loans are a solution to this problem.
There are two primary ways that mortgage companies are able to provide no closing cost loans. The first is to charge a higher interest rate, which allows them to recover the fees over time. The second is to roll the closing costs into the balance of the mortgage.
Advantages And Disadvantages
Whether to select no closing cost loans should depend on a few factors. If you plan to pay off your loan within a few years, then it may be a good option since you would be paying the elevated interest rate for only a short period of time. This can be applicable when interest rates are high but are expected to fall in the near future or if you plan to own a property for a short length of time. On the other hand, if you intend to hold a loan for the long term, then the cost of the higher interest rate over time can be significantly more than merely paying the closing costs now.
It is important to mention that no closing costs may NOT mean that cash is not be due at closing. Closing costs describe only some charges. Other charges, like escrows, fall under the classification pre-paid items. They are not put in the closing costs category and will therefore still be required at closing.
Philadelphia No Closing Cost Loans
Philadelphia no closing cost loans may or may not be the best solution for your particular situation. To make an informed decision about what type of loan works best for you, compare both the interest rate and fees of each loan. Also analyze how long you expect to keep the mortgage and the financial cost over time. Most of this data may be found on a good faith estimate from your mortgage company.