Buy and Borrow

Are Closing Costs Ever Really Free?

Erin Palmer

June 21, 2019

Closing Costs
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With down payments, insurance coverage and other fees, buying a home comes with a number of expenses. So it’s no surprise that the promise of no closing costs is so appealing to homebuyers.

But these offers of no closing costs are not always what they seem. Usually the costs are simply built into the mortgage rate.

It may seem like a great deal to have no closing costs, but it likely will lead to increase in other costs. If the mortgage rate is higher to accommodate no closing costs, the homebuyer may not be saving money in the long run.

So if you’re buying or refinancing a home, it’s always important to look at the big picture.

Pay Attention to Special Offers on Closing Costs

Lenders might occasionally offer a promotion to waive closing costs. But that’s not as common as advertising leads you to believe.

When you are offered any closing cost or mortgage promotion, take time to consider it in the larger context of the mortgage. If the promotion will save you $1,000 but it leads to a higher interest rate that will cost you thousands of dollars over the years, it may not be worth it.

Disadvantages to No Closing Cost Mortgages

Quite often when a lender says they will cover your closing costs, it isn’t a promotion at all. It simply means that those costs will be spread throughout your mortgage.

This means your monthly payment may be higher to cover the closing costs. Or the lender will offer a higher interest rate, which could lead to you paying more over time.

So if you plan to stay in your home long-term and want a low monthly payment or the most competitive interest rate, a no closing cost mortgage might not be the optimal choice.

Consider Negotiating with the Seller to Cover Closing Costs

During the negotiation process, you may be able to get the seller to cover your closing costs or part of them. This process depends on the seller’s needs and the offer, but it might save you some money.

Since it is a negotiation, you may have to go back and forth before finding a deal that works for both parties. Sometimes the seller may ask you for something as a trade-off, like a faster closing process.

Again, look at the offer in context of the overall costs and decide if it is worth it for you.

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