You have probably heard about No Closing Cost Refinances but not No Closing Cost home purchases. That is because very few lenders ever let you know it is possible or just don’t offer it. At Family Mortgage we believe in exploring your goals and objectives first and then matching your home loan to be in harmony with those objectives.

What is a No Closing Cost Purchase loan?

No-cost home purchasing seems like an idea that's too good to be true. But it's here, and it's waiting for homeowners at Family Mortgage. The no closing cost mortgage does not increase your loan balance by one penny and can save you hundreds of dollars per month.

What’s the Catch? This sounds too good to be true...
No catch! The rate on a no closing cost loan is slightly higher than the rate on a loan with closing costs. Your loan will have an interest rate that is slightly higher than the rate available for a loan where you pay your costs and/or points. Because the loan has this higher interest rate the lender pays us a commission. We use this commission (called the yield spread) to pay all the costs.

Here's why it works: Mortgages are traded on the securities market at the market rate, which is called "par". The market will pay what's called "an above par premium" (called yield spread premium) for rates in excess of par. Mortgage lenders can then turn around and use this money to pay for the typical costs of closing - origination fees, appraisals, credit reports, title insurance and attorney's fees.
For example, let's assume that a couple purchased a home in 2002 with a $200,000 mortgage at an interest rate of 7.25% and paid closing costs. Today let’s assume the market interest rate has fallen to 6.50%. It doesn't make a lot of sense to pay closing costs a second time for only a ¾ % drop in the interest rate. However, this same couple could refinance with no closing cost and get a rate of approximately 6.75%. This would save them approximately $100 per month and cost them nothing out of pocket!

Reasons to choose a NO Cost Purchase Loan over paying closing costs:

1. You are not sure how much longer you will stay in the house.
2. You are not sure how much longer you will stay in this new mortgage. In Atlanta, the average loan pays off in less than 4 years. It typically takes 4 to 6 years to recapture closing costs if you decide to pay them when refinancing your home. Remember that you don’t just refinance to get a lower rate. It could be for a medical emergency, college education for your children, to remodel the house etc….
3. You believe that there is a chance that rates might go lower in the future. If they do then we can refinance you once again with no costs. We will call you up when the opportunity presents itself….then you have lowered your payment twice for free. We have a number of clients that have done this 4 or 5 times over a 5 year period. That is like winning the mortgage lottery!!

Reasons not to do a No Cost Purchase Loan

1. You believe that rates will never go lower than they are now and you are not planning to move for at least 5 years.
2. You believe that rates will never go lower than they are now and you are not planning on needing to tap the equity in your home for any reason for at least 5 years.
3. Your loan balance is less than $200,000 and your credit is not very good. The exception to this is if you have a smaller loan balance and you think you will definitely be out of the house within 3 years. The smaller the loan size, the higher the rate will need to be to get enough yield spread premium from the lender to pay your closing costs.
4. Your loan is for an investment property.

Consider the following example:

Unlike many companies we can do loans BOTH with costs and without. We can provide you with a rate quote that shows both options. We believe there is no single solution that is right in all situations. Submit a rate request to receive personalized analysis.

At Family Mortgage we realize that purchasing a home is likely the most important financial decision you will ever make. Because of this, it is important that you give shopping for a mortgage the attention it deserves.

In order for us to do our job correctly, we need to explore your financial goals and objectives and your anticipated future needs. This will allow us to present options that have the best chance of utilizing your mortgage to create future wealth for you and your family.

Let's take a simple example: a couple in their mid-forties has just sold their home and has a new house under contract to purchase. They walked away with $150,000 from the sale of their home and they are buying a house for $350,000. They want to take the $150,000 and use it for a down payment on the new house. Does this make the most sense?

Some ads like this take consumers' cash up front and then fail to deliver on their promises of big profits. If you're thinking of investing in a business opportunity based in or out of your home, what can you do to spot potentially fraudulent offers?

Unlike many lenders, Family Mortgage will lock your interest rate as soon as we have agreed to work together.

Many lenders will require an upfront fee, (an application fee, usually around $350) the application paperwork to be complete and signed, and some even require the appraisal to be complete to lock your rate.

Be wary of companies that won’t protect you upfront. Interest rates change daily and can increase rapidly depending on market circumstances.