No-closing-cost refinances work just like a regular mortgage but with one difference. In a no-closing-cost loan, don't have to pay closing costs up front -- but the lender recoups that money in the long run, either through higher interest, adding the closing costs to your mortgage balance, or both. It's a lot like paying points in reverse: instead of giving your lender money to lower your rate, they're giving you money and raising your rate. While paying your own closing costs might be the better deal, no-cost loans can be a good option if you think you'll end up selling the house or refinancing again soon.
Compile the paperwork that you will need to qualify for the mortgage. While every lender's requirements vary, having a couple of month's worth of pay stubs and account statements for your savings and checking accounts should be a good start. In addition, you may need W-2 forms for the last couple of years and tax returns.
Review your credit score. If you have a low score, you may have trouble getting a mortgage. Your lender can also help you with this and may be able to help you clean up any credit issues.
Comparison shop between lenders and mortgage brokers to find one that will offer the best rate and terms. Review the estimates that you get from them carefully to ensure that you're choosing the best offer. When comparing the costs, compare interest rates, but also check whether there are truly no closing costs or whether your mortgage balance is increased to reflect the added closing costs. You also want to compare how much is added -- for example, two lenders might add the closing costs to the mortgage, so you don't have to pay any costs at closing, but one lender's fees might be higher than the other's.
Fill out your lender's application package. Supply all of the paperwork that they require, and follow any required procedures. For example, some lenders might require that an appraiser see the inside of your home.
Close on the loan. At the closing, you sign the loan documents necessary to pay off your old loan and put the new one in place. Since you have a no-closing cost loan, you shouldn't have to bring any significant funds to the closing. Once the loan closes, you stop paying your old lender and start paying your new one.
According to the Forbes website, there is no such thing as no-closing-cost refinancing. There is only a “no-out-of-pocket-cost-refinancing.” As long as you understand what you're paying for, and as long as this meets your financial needs, such a deal might work for you.
- Bankrate.com: Is No-Closing-Cost Mortgage for You?
- Forbes: The No-Cost Refinancing Myth
- Bankrate.com: 5 Steps to a Successful Refinance
- WebsterBank: Refinancing Your Home, Step-By-Step
- ClosingCorp. "ClosingCorp Reports Average Mortgage Closing Cost Data for 2019," Pages 1, 3, and 4. Accessed August 15, 2020.
- U.S. Congress. "12 USC Ch. 27: Real Estate Settlement Procedures." Accessed August 15, 2020.
- U.S. Department of Housing and Urban Development. "Mortgage Insurance Premiums," Page 1. Accessed August 15, 2020.
- Consumer Financial Protection Bureau. "What Is Private Mortgage Insurance?" Accessed August 15, 2020.
- According to the Forbes website, there is no such thing as no-closing-cost refinancing. There is only a “no-out-of-pocket-cost-refinancing.” As long as you understand what you're paying for, and as long as this meets your financial needs, such a deal might work for you.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.