Exactly how does a No Closing Cost Mortgage Refi really work?
1 – Payment of Closing Cost fees is done within the transaction at the Closing table via a Lender Credit, which is disclosed on the Good Faith Estimate to offset the origination fee and other third party fees, (see below). In most cases, the Lender credit will not be enough to offset the total cost of the Closing Cost fees. Generally, the larger the loans, the more Closing Costs can be paid by the Lender. This is true of both Conventional and FHA loans.
Several years ago before government legislation changed the way that Banks and Mortgage Brokers were regulated with additional governmental fees and restrictions, No Closing Cost Loans could actually pay for all of the Closing Costs. However with the passing of the Dodd-Frank H.R. 4173 bill in 2010, the fees that the Lenders could credit were severely reduced because of the additional money that the Lenders have to pay due to compliance issues as well as lower yield spread premiums that the banks could receive when the loans are sold into the secondary market. Unfortunately for the No Closing Cost Option, the amounts that can be credited back to the Borrower are much less then were allowed prior to 2010.
There are more regulations in process to additionally restrict Mortgage Brokers / Non-Depository Bank Mortgage Companies. Fortunately, the FDIC Depository Banks and Credit Unions will continue to have some insulation on those forthcoming restrictions and requirements.
2- In some cases, if the property appraises for more than 120% of the payoff amount, the loan can be increased to provide an additional amount of money which could also be used to offset 3rd party Closing Costs. This is commonly referred to as “rolling in the fees”.
3- Tax and Insurance escrows are usually not covered in No Closing Cost loan credits because those are costs that will either be reimbursed by the existing Lender within 30 days by law and your insurance company will transfer the existing policy to the new loan without any additional charge.
4- Appraisal Fees are paid up-front by the borrower(s) then possibly reimbursed by the Lender Bank at the Closing (if there is enough of a Lender Credit to do so). If the loan is cancelled or does not close, for any reason, the appraisal fee will not be reimbursed.
By choosing our NO CLOSING COST Mortgage Refinance option, we will pay for some or all of listed fees below depending on the size of the loan:
Credit Report Fee
Tax Service Fee
Flood Certification Fee
Lenders Title Insurance Fee
State Recording Fee
Payoff wire transfer fees
Title Binder Fee
State Transfer Tax
Governmental Recording Fees