No-closing cost mortgages are mortgage arrangements wherein the borrower doesn’t need to pay any of the up-front closing costs associated with a mortgage. Closing costs often include fees for services like home valuation/appraisal, title search costs, insurance premiums, loan origination, and other costs.
Overall, closing costs may involve several thousand dollars and may represent anywhere from 2-5% of the total purchase price. Thus, a no-closing cost deal can result in reductions in costs for the buyer, and can help sellers or lenders attract more leads.
In a no-closing cost mortgage, the broker or lender will often pay the closing costs for the borrower, or will waive them. The trade-off is that the borrower will often have to pay slightly higher monthly interest rates. For borrowers, no-closing cost mortgages can often be less complicated to work with as they don’t have to worry about calculating additional costs during closing.
This can be a benefit for persons who plan to live on the property for only a short period of time (such as less than five years). That way, their overall savings from not paying closing costs will not be "eaten up" by their interest payments over the years.
On the other hand, buyers who plan to stay with the property longer than five years might not reap as much benefit from a no-closing cost mortgage, as the higher interest rates on such loans may outweigh the savings from the no-closing cost arrangement.
No-closing-cost mortgages are often associated with very specific types of disputes and legal conflicts. These can include:
- Fraud or misrepresentation with regards to the costs (for instance, telling the borrower that there are no closing costs, but including additional charges in the overall purchase price)
- Mortgage defaults by the borrower, sometimes leading to foreclosure processes
- Violations of local, state, or federal real estate standards
- Disputes over contract terms (such as monthly interest rates, payment dates, etc.)
- Various other types of closing cost disputes
Disputes over no-closing cost refinancing can also occur, and may involve some of the same issues as during an initial mortgage loan. Legal remedies may often include some form of monetary damages award for the non-violating party.
No-closing cost mortgages can often have advantages, but they can also have some disadvantages as well depending on the situation. You may wish to hire a real estate lawyer in your area if you need assistance with a no-closing cost mortgage. Your attorney can help you during negotiations, and can also inform you of your rights in the event of a dispute. Also, if you need to file a legal claim, your lawyer can assist you with a lawsuit if needed.