Lender Advertised NoClosing Cost Programs

Many lenders advertise no closing cost loans. However, the truth is that the closing costs are still there, and they are paid by the borrower—one way or another. If they are not paid outright, closing costs are paid through the loan's interest rates, annual fees or restrictions.

With many lenders, "no closing costs" means no "lender" closing costs. However, lender closing costs only apply to application, appraisal, credit reporting, processing or underwriting fees, as well as origination and discount points. Lender closing costs are only those settlement charges assessed by the mortgage lender. In fact, lender closing costs normally account for only a quarter of the total closing costs.

When no closing costs means no "lender" closing costs, be prepared to pay the other closing costs, such as title insurance, county recording fees and attorney expenses.

Some lenders will actually pay most or all borrower closing costs. But don't make the mistake of thinking that they are doing this out of generosity. Often times, these "no closing costs" programs pass the costs back to you in the form of higher interest rates. This is actually not a bad idea for cash-strapped borrowers, but don't be fooled.

Just as there is no such thing as a free lunch, there is no such thing as a true "no closing cost" loan. Someone must pay the closing costs—one way or another it will usually be the borrower.

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