A no cost home loan is when the lender pays settlement costs such as processing fees, appraisal fees, title and escrow fees and so on. However, your lender may place all of your closing costs inside your loan amount and this will in turn, increase the amount of your loan.
No cost home loans can be a good deal for some however, before signing up for one, you need to know the facts. This kind of loan sounds great but as with any loan, there are costs that must be evaluated. With a no cost loan, you will not have to pay the upfront fees but you will have to pay a higher interest rate. In the beginning you will save money but later you will have to pay higher interest rates.
In addition, instead of paying the processing fees, and appraisal and credit report costs, you will in most cases, pay for government taxes, funds necessary for escrow and homeowners insurance. In addition, no cost home loans may also have prepayment penalties”penalties that are there to discourage you from refinancing with bad credit.
Also, keep in mind that there may be additional charges added on to your loan amount. Those who benefit the most from a no cost mortgage loan are those who would have a hard time making the upfront charges on the loan and those who are planning on moving in a few years.
In the last decade no cost mortgage loans have become more popular and acceptable and that is because of the change in property values and the increased loan amounts that are available. So, to ensure that a no cost home loan is for you, talk with several lenders, seek information on this subject and if possible, talk with those who have gone through this experience.
Those who might also benefit from a no cost home loan are those who have bad credit. There are some home lenders who help those who have a bad credit history but before signing up, do some research and find out who has the lowest interest rates, a loan will meet your needs and of course a loan that has no hidden fees.