Closing costs refer to the amount of money you pay when you originate a mortgage loan. Closing costs can include application fees, fees for title search and appraisal, discount points you pay to reduce your interest rate, and other costs associated with buying a house. These often add up to several thousand dollars. Some buyers thus look for a no-closing-cost mortgage. However, there is rarely such a thing as a true no-closing-cost mortgage, so make sure you understand what exactly you are getting.
The only real way to get a true no closing cost mortgage as a buyer is to arrange a deal where the seller pays the fees. These are possible if you structure your real estate contract in this way. The seller will pay out of the proceeds of the payment you make for the house. Usually, this is only an option in a buyer's market, when the seller is eager to sell. If you think you can structure your deal this way, mention in the offer that you want the seller to pay the closing costs.
Rolling the Costs In
The more common method of a no-closing-cost mortgage occurs when you simply roll the closing costs into the mortgage loan. In other words, you are essentially borrowing the money for the closing costs as part of your mortgage loan and you then pay it back over the years as part of your principal. This can make your mortgage cost more, so if you do this, you usually should have a good reason, such as if you are unable to avoid closing costs.
You may be able to ask your lender or bank to waive some closing costs. If you have good credit, for example, the bank may be willing to waive the loan origination fee or application fee. Some costs however are rarely, if ever, waivable. For example, a title search involves paying a title company to make sure there are no liens on the home. The title company will want to be paid for performing this service. Thus, make sure you understand what fees can be waived and which fees are just rolled into the cost of your mortgage somewhere else.