When it comes to purchasing a house, there are often huge fees that you have to provide upfront. It’s possible that you can be approved for a mortgage loan and not have enough money for closing costs. In some cases, you can ask the seller to take on the responsibility of the closing costs or roll the costs into your mortgage. But is it possible to avoid closing costs when you refinance a mortgage? In a word, yes. With some research on your part—and a careful look at the fine print—you can refinance your property without any form of closing fees.
Shop Around and Negotiate Terms
To begin with, it’s important that you stay alert to hidden fees that might take the place of formal closing costs. It is actually possible for a “no closing cost” loan to be more expensive overall than a standard refinance, so you should proceed with caution. Inquire about the specific terms before committing to a lender, and make sure that your idea of “no closing costs” corresponds with the terms the lender actually offers. Consider taking some research steps that can save you thousands:
- Begin by meeting with a housing counselor endorsed by the United States Department of Housing and Urban Development. The counselor can clarify what lenders and programs you should look at, and might even participate in negotiations with a lender.
- Identify a lender that advertises refinances without closing costs. If your current lender is not on that list, you might still talk with them first. It’s possible that they will waive some of their usual fees rather than lose your business.
- Download the worksheet for mortgage shopping offered by the Federal Reserve Board. With the questions on this checklist, you can make an informed comparison of the lenders you interview.
- When you talk to prospective lenders, ask them to clarify what exactly is meant by “no closing costs” in their refinance program. They may be offering a loan structure that doesn’t include any out-of-pocket costs for you, but those costs might be rolled over into the loan itself, or recouped by charging higher interest rates. Ask for a comparative break-down of the refinance costs with the “no closing costs” option, and without it, so you can identify any hidden costs.
- Get a Good Faith Estimate. The federal Real Estate Settlement Procedures Act needs lenders to produce prospective borrowers with a good faith estimate of the comprehensive costs of a loan. Ask each lender for this estimate so you can compare the different offers.
- Read the fine print. Before signing your refinance, carefully read all the fine print to ensure that the actual loan matches the terms you have agreed to.
APR at a Glance
Another quick way to assess the comprehensive costs of a refinance is to inquire about the Annual Percentage Rate, or APR. The APR actually combines the costs of insurance, interest, and closing fees, so even if a lender has hidden the closing fees under some other designation, the overall cost will be revealed when you compare the APR of different lenders.
If you avail yourself of some free expert advice and take the time to do some comparison shopping among prospective lenders, read the small print, and ask for the right revealing reports, you can refinance your property without closing costs—either overt or hidden.