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What’s a “No Closing Cost” Loan and Is It Truly No Cost?

Chances are you have seen a commercial that is advertising “no closing cost loans” for homes. This probably sounds like a good deal to many; perhaps it sounds like too good of a deal.

“There truly is no such thing as a ‘no closing cost’ loan”. The tricky wording in advertisements can give the illusion that a loan doesn’t have any closing costs to the person taking out the loan. Let’s break down where those costs go and why loans truly never have “no closing costs”.

Where does the money go and come from?

There are so many third parties that are involved in a loan transaction besides just the lender such as appraisal, title work, all the inspections, and of course, interest. These all take and charge fees and have to be paid by someone, at some step in the loan process. So where do those fees go and who pays them? This is what creates the illusion of a “no closing cost” loan.

The seller could potentially pay for them, which actually would make it truly no cost to you, the borrower. The lender can also pay for those fees and charges, but they want to make money still, so they will likely charge you on your interest rate to make up for it. This would lead to a little bit of a higher interest rate than what the market is; therefore you are still paying for those closing cost fees, but you aren’t paying for it in a closing cost form, just on the interest rate.

Questions about “no closing cost” loans?

If you are interested in a “no closing cost” loan, be sure to find out where those costs are being passed off to. Don’t get stuck with hidden costs that could hurt you down the road. Contact us if you have questions about your loan or where the money is going and coming from and trust VA loan spot to give you the best possible loan for your needs.

Bobby Atkisson

Bobby Atkisson

Bobby Atkisson is a seasoned mortgage professional who provides high quality financial services to military members and veterans. With over 14 years experience in the lending and financial industry, his mission is to provide high quality mortgage programs with the most competitive interest rates. For expert advice and guidance on VA Home Loans and Refinance, contact Bobby today at 800-537-2050.