No closing cost mortgages are typically interesting to buyers with few funds to bring to closing. The term is a bit misleading as there is always a cost to lending money. However, the way those costs are recouped by a mortgage company can be accomplished differently. The following is an overview of PA no closing cost mortgages, what you should be aware of, and how it compares to mortgages with closing costs.
What Are No Closing Cost Mortgages
Closing costs apply to all loans because lenders must cover the cost of processing loans, paying brokers, etc. In a typical mortgage, the specific charges are disclosed and payable as closing costs. However, not all borrowers have the money to pay these fees up-front. No closing cost mortgages are a solution to this problem.
There are two ways that lenders can provide no closing cost mortgages. The first is to obtain a higher interest rate, allowing them to receive the amount gradually. The other is to include the closing fees into the principal amount of the loan.
Advantages And Disadvantages
Deciding whether to select no closing cost mortgages must be based on several factors. If you intend to pay off your loan in a short period of time, then it can be beneficial since the higher interest rate would be effective for only a short number of years. This can be applicable during times where interest rates are high but are likely to lower in the near future or if you plan to own a home for a short period of time. Alternatively, if you plan to hold a mortgage for for its full term, then the cost of the larger interest rate over time will be significantly higher than merely paying the closing costs now.
It is important to note that the lack of closing costs does NOT mean that cash is not be due at closing. Closing costs really only apply to only some charges. Other items, such as property taxes, fall under the classification pre-paid expenses. They are not considered closing costs and will therefore still be due at closing.
PA No Closing Cost Mortgages
PA no closing cost mortgages may or may not be the best solution for your mortgage needs. To make an educated decision about what type of mortgage works best for you, compare the interest rate and closing costs for each option. Also think about how many years you plan to have the mortgage and the financial impact over time. Most of this data may be found on a good faith estimate from your lender.