No Closing Cost Mortgages from Provident Funding

Folks, while Provident Funding does not offer a no closing cost mortgage per se, they present you a rate sheet of the rates and allow you to pick, in effect, the amount of closing costs you want to pay, regardless if it’s $0, or the whole kit and caboodle.

A little about Provident Funding, they are a lending institution out of Burlingame, California; and are also know as Provident Funding L.P. They loan in what appears to be the contiguous 48 states which excludes Alaska and Hawaii. They loan direct to you and me, the consumer, but they also loan through mortgage brokers as well through their mortgage wholesale section. While I am no mortgage ‘insider’, they claim on their website that they are the 10th largest wholesale lender in the US and service over $25 billion in loans.

You can go to their website and see what kind of mortgage interest rate you qualify for by running your numbers through their ‘Advanced Calculator’ option on their website to see what kind of rates you may qualify for. You will get a wide range of rates with the rates on the top being the lowest rates you can get by paying closing costs or buying points. As I write this, the lowest rate for my state is 4.25%, but that will cost you regular closing costs AND 3.125% in points. You could go all the way up to 5.5% for your mortgage rate and get a no closing cost mortgage, which is labeled as ‘No NRCC.’

What does ‘No NRCC’ mean? Well, it means that for that interest rate, there are ‘No Non-Recurring Closing Costs’ associated with that interest rate. Or, what I like to refer as a no closing cost mortgage. Now, if you are paying real estate taxes or insurance, that is not considered NRCC because you will always those costs year in and year out.

Funding fees however, title fees, mailing costs, lawyer fees, whatever however, that you only pay in the course of getting your mortgage is covered under the ‘No NRCC’ option which is what this website is about. We want no closing cost mortgages because they allow the most flexibility to us as the consumer.

I’ll restate it like I have in the past, BUT, if you are moving into your forever house, then you may look into paying closing cost and even potentially purchasing points to get that lower interest rate, but if you are like most Americans, you won’t be living in your forever house and will move in short order, so it would be best to get a no closing cost mortgage if it is less than three years as I pointed out in a previous post with the analysis.

If you decide to go with the ‘No NRCC’ option however, you do also have the option of taking a bit lower rate for just a tad bit in closing costs. For instance, looking at my situation, if I wanted to pay no closing costs, I would be looking at a interest rate of 5.5%. If however, I paid $145.40 in closing costs, I could get the one lower interest rate of 5.375%. Heck, looks to me like I could potentially get 5.25% for only $290.81. Sounds like I need to give Provident a call and look at refinancing my mortgage again from when I refinanced with Wells Fargo back in April. While I will admit that will re-amortize my mortgage, it will save me about $22 a month, or $264 a year. Not a large sum of money I will admit, BUT, that is money in my pocket today which is what I am after, cash flow today. If however, you want to pay off your mortgage as quickly as possible, then you may want to pay it off quicker, or with larger payments. BUT, you could refinance, apply the payment savings to your mortgage, AND add in the payments you were making.

Let me illustrate, and I’m using round numbers again because that’s how I operate, my brain is simple although randomly it will do semi-complex numbers, but we’re keeping it easy today.

If my mortgage is $1,000 a month right now. If I refinanced, I could potentially save $150 a month at a lower interest rate, but make payments for 30 years from the day my mortgage closed again. Well, I could keep making payments of $1,000 and pay my mortgage off that much quicker, less than 30 years because I’m making more than the required payment. And you’ll pay less in interest over the life of your mortgage.

Provident Funding charges a $1,099 funding/commitment fee to do a loan for you. This fee is flat and does not adjust like it would if they charged a 1% fee like many mortgage brokers do. If we divided the $1099 fee by 1%, we get $109,900. If your mortgage is $109,900 or less, the fee would be the equivalent of paying a 1% funding fee. If however, your mortgage is larger than $109,900, that is when you start saving money over going with a traditional mortgage broker that charges a 1% funding fee. If your mortgage amount is $200,000, Provident Funding Mortgage will still only charge you $1,099. If you go with a mortgage broker however that charges you 1%, then you’ll pay $2,000. You can see that you’ll pay $901 more to a broker over directly going with Provident Funding.

Why am I talking about Provident Funding though and what do I know about them? Before I refinanced my mortgage with Wells Fargo, I had refinanced prior to that with Provident Funding with a conventional 30 year mortgage. It has been some time, so the statements I am about to make are from my memory which may or may not be accurate.

They were easy to deal with and my mortgage refinance went relatively painlessly except for the issue in which I asked to close with one group and they tried to close with a notary. While I would probably go that route NOW, I didn’t then and my mortgage closing had to be rescheduled until the people I wanted to close with could get the documents and close.

Otherwise, the application process, lock process, everything was pretty painless. My processor was responsive and was pleasant to deal with. I unfortunately don’t know if she still works for Provident Funding, but she was all right to deal with. Another thing that I enjoyed about Provident is the fact that in the five years they held my mortgage, then NEVER sold my mortgage. I always made my payments to them the loan was never sold.

Because of this reason however, Provident may be a little bit more conservative in their lending criteria, so unless you have awesome credit and a stable income, they may or may not be the lender to go to.

If I remember correctly, from application to closing took me about two months which isn’t out of the ordinary, I believe it’s about average as far as mortgage refinancing goes.

While visiting their website, they are associated with a bank now out of Colorado and are offering a high yield savings account currently running 1.7%. For a savings account with no minimums, that is a respectable rate. Even Ally bank where you see those funny commercials on TV about the restrictions and no fees, is running a lower interest rate than Colorado Federal Savings Bank.

Enough about Provident, post your experiences with them if you have them or are looking at using them. I’d be interested to hear what you have to say about them and see if they are still right for me to refinance with. I will of course be calling them to inquire further on the rates.

Speaking of rates though, they have gone down a bit recently and if you have a no closing cost mortgage, you may be looking to refinance again to lower your mortgage amount.

Teachers Federal Credit Union No Closing Cost Mortgage

Teachers Federal Credit Union, or TFCU, offers a no closing cost mortgage option. Because Teachers Federal Credit Union is a Credit Union, you have be in their field of membership. TFCU is based in New York state, so you will more than likely have to reside near them or have family that qualify for TFCU which would then also make you eligible to join their Credit Union. The list of eligible groups of individuals are large by the groups that are associated with them and the list of designated areas within Suffolk County New York that qualify. While TFCU offers many of your standard mortgage types, we are going to discuss specifically the no closing cost mortgage option that they offer.

Onto their no closing cost option mortgage. They require a rate add on of 0.50% for loan to value of 80.01% to 95%. For loan values up to 80%, they only require a rate add on of 0.25%. This rate add on is what is used to cover the costs they would incur to give you the requested mortgage. You could always just pay the closing costs on your own and take the lower rate, but you would have to figure if that is worth it too you; their estimate is that you are looking at approximately 3% of the mortgage amount for your closing costs. From what I can tell, the no closing cost option is available for purchase and refinance mortgages which is great because purchase mortgages are difficult to accomplish with no closing costs.

Note: They do state that for refinances, there could be additional rate adjustments depending on your credit score and the loan to value of the loan.

If we just use nice round numbers at 30 years, at today’s rates of 5%, you are looking at the following:

Amount	3% of Closing Costs	Regular Payment	No Closing Cost Payment at <80%	Difference	Months to recover closing costs
$100,000	$3,000	$536.82	$552.20	$15.38	195
$200,000	$6,000	$1,073.64	$1,104.41	$30.77	195
$300,000	$9,000	$1,610.46	$1,656.61	$46.15	195

So what the chart above shows is that if you choose to go with paying the 3% estimate in closing costs, it will take you about 195 months before you start saving money if you choose to pay closing costs. If we take it that your loan to value is greater than 80.01%, it would still take 97 months before you recovered the closing costs and actually started saving money.

You can choose to go with any of the following for your mortgage terms, 20, 30, or 40 years. If you decide to change the term of the loan, the rate increases by 0.125% for each ten year increase that you choose, so for instance, if you wanted to pay on a 30 year schedule, it would cost 0.125% more in interest rate than the 20 year payment would; and the 40 year rate would be another 0.125% more expensive than the 30 year payment.

Something else that I notice is in the list of all of the fees that TFCU will cover is the first year of your mortgage insurance, or PMI, premium. That could potentially be worth $1,200+ a year if you are at about 95% for your loan to value. That’s a pretty big deal in my opinion if you have to carry PMI. The other fees that TFCU will cover with the no closing cost option are as follows:

Appraisal Fee

Underwriting Fee

Title Insurance to include the title searches

Recording Fees

Tax Service Fee

Lender Attorney Fee

Flood Insurance Fee

Teachers Federal Credit Union does list other fees to either get a longer rate lock period or you can also buy down the interest rate. To save on the rate lock fee, choose the shortest period to take advantage of the lower fee and make sure that you have your documents in order. I wouldn’t buy down the rate only because the no closing cost mortgage option gives you the flexibility to refinance if the rates drop more. These suggestions apply regardless if you take advantage of TFCU’s no closing cost mortgage option or pay customary closing costs because they show the same buy downs and fees on their regular mortgage. To lock in your mortgage rate, you have to go to a TFCU branch office and ensure that you have the money in your TFCU account so that you can pay your fees.

TFCU lists the following paperwork they will need to process the mortgage:

1. a. Online Mortgage Application

   OR

   b. Fannie Mae 1003 Mortgage Application

2. Borrowers Authorization
3. Acknowledgement of Lock-in Options
   • Unrelated borrowers must fill out separate applications on items 1-3.
4. Floating Rate Agreement
5. $425.00 non-refundable application fee.
6. Proof of Income:
   • Salaried Borrowers - One (1) Year W-2 (2008) and CURRENT paystub for EACH applicant.
   • Self-Employed Borrowers - Include CURRENT and PREVIOUS years
     (2007-2008) tax returns with schedules attached.
   • Retirees - Submit Social Security Award Letter, Pension Award Letter, or 1099's and One (1) month Bank Statements verifying Direct Deposit.
7. Copy of Deed - REFINANCE ONLY
8. Copy of Guarantee Survey - REFINANCE ONLY
9. Certificate of Occupancy for all structures and improvements - REFINANCE ONLY
10. In addition to the above, PURCHASE Applications MUST include:
    • Executed Contract of Sale
    • 2 consecutive months bank statements showing funds available for closing
    • Copy (front & back) of cancelled Down Payment Check

TFCU also allows those that already have a mortgage with TFCU to go through the “Refi-Plus Mortgage Refinance” which from appearances, looks like it is a cheaper way to refinance your mortgage. You can only utilize the Refi-Plus program if you are looking to lower your interest rate, or changing the length of your mortgage, either shortening it or getting a longer term but not refinancing from an existing 30 year mortgage to another 30 year mortgage at the same interest rate. The application fee is only $225 versus $425 like on a new application. Their document requirements don’t appear to need as much information as a regular mortgage.

$225.00 Application Fee

Completed FNMA 1003 application OR Submit our Online Mortgage Application

Signed Floating Rate Agreement

Signed Lock-In Option Acknowledgment

Signed Borrowers Authorization

Salaried Borrowers: Current paystub for Each applicant

Self Employed Borrowers: Include Current and Previous years (2007-2008) tax returns with schedules attached.

Retirees: Submit social security award letter, pension award letter, or 1099s and one month bank statement verifying direct deposit.

You can always find out more information on Teachers Federal Credit Union by calling them or stopping by any of their branches. Their numbers are listed as 631-698-7000 if you are within the NY Metro Area or 800-341-4333 if you are outside of the NY Metro Area.

To sum it up, it appears that Teachers Federal Credit Union is encouraging consumers to go with the no closing cost mortgage option that they offer considering that the rates are so competitive versus a regular closing cost mortgage, and the fact that it takes 195 months to recover 3% of closing costs on a 30 year mortgage with a LTV of >80%, that’s 16.25 years folks, more than half the time for a 30 year mortgage. Might as well just go with their no closing cost mortgage option.

Update to Wells Fargo's No Closing Cost Mortgage

Folks, I called Wells Fargo tonight because mortgage interest rates have fallen again and just wanted to see what the rate on the no closing cost option was, because after all, I can seeing as how I have no skin in the game in regards to closing costs, and I was told that Wells Fargo did away with their no closing cost mortgage program, the internal program they used to offer.

The only available option left for a no closing cost mortgage through Wells Fargo is the "Home Affordable Refinance" program that was instituted to help out underwater home owners. This program appears to be tied to the federal government and is one of the many programs they have going trying to help out home owners. This does not appear to be a mortgage modification program, but instead a straight up refinance program, but you don't have to pay any closing costs for this program. To determine if you qualify for this program, visit the eligibility questionnaire to see if you qualify.

While I am disappointed that this program is no longer available via Wells Fargo, there are other lenders out there that offer similar programs, like the option offered from Fremont Bank and other banking institutions. My goal with this website is to find those lending institutions and highlight the program highlights so that people can easily find lenders that offer these programs. If you know of a program, let me know so we can spread the word.

UPDATE: After further 'investigation' on my part, it appears that the program is still alive and well. They have just tightened the requirements to qualify for this program. You just need to call them and find out what those requirements are and see if you qualify.

Is a no closing cost mortgage right for you?

In short, a no closing cost mortgage depends on your situation. It depends on a number of factors which I will discuss in this article.

Currently, due to the economic situation that we find ourselves in, a no closing cost mortgage option is tough to find and rare depending on the lender that you choose, because of that, you will have probably have to ask a number of different lenders on options they may be able to provide you.

First off, let's define a no closing cost mortgage. This is when you either purchase or refinance an existing mortgage, and all you have to bring to the closing table is yourself and some identification, the closing person will more than likely give you a pen to use. You don't write a check to the closing company, you don't give cash, nothing. This is also applicable to a no closing cost mortgage refinance.

What a no closing cost mortgage is not is where you have to pay for your closing costs, OR, your mortgage amount goes up because your closing costs are rolled into your mortgage. What I mean by that is if you have are taking out a $100,000 mortgage, your balance will still be $100,000 once the closing takes place, plus the interest for the month if you are skipping a mortgage payment.

Why am I taking the time to ensure that I define a no closing cost mortgage? Because, unfortunately, too many people, to include lenders and brokers, think that when you ask for a no closing cost mortgage, you are asking to roll your closing costs into your loan amount. This is not what I discuss on this blog. Why? Because when you do that, you are going to pay interest on the closing cost for the length of your loan. If your mortgage term is 30 years, you will then pay approximately three times the principal amount in interest therefore, potentially negating any interest savings. Granted, there are other factors to look at, for instance inflation, BUT, that is not what a no closing cost mortgage is.

If you plan on staying in your house for a good long time however, then you would actually want to pay closing costs to take advantage of the lower interest rate for a longer period of time. If however, you are like most Americans, you will probably move in short order, approximately every six years, and sell your house and buy another house. In this case, you don't want to pay closing costs because it does not make sense. Not to mention the fact that if you do sell your house, your savings will be dimished and you will probably spend more money that you would have if you had refinanced with a no closing cost mortgage. What this also allows you to do is to refinance at will if interest rates drop as they have been doing lately.

For instance, let's look at a couple of scenarios based on today's interest rates.

If you take out a 5% mortgage and pay customary closing costs, your closing costs will be approximately 2% of the loan amount depending on where you live. Based on a $200,000 mortgage, you are looking at the following numbers:

Year	1	2	3	4	5
Closing Costs	$4,000	$4,000	$4,000	$4,000	$4,000
Payment	$1,073.64	$1,073.64	$1,073.64	$1,073.64	$1,073.64
Total Interest Paid	$9,932.99	$19,715.01	$29,338.35	$38,794.87	$48,076.06
Total Cost	$13,932.99	$23,715.01	$33,338.35	$42,794.87	$52,076.06

If however, you don't move, or if you take a mortgage with no closing costs, the interest rate averages approximately 0.5% more than if you were paying closing costs. Based on a 5.5% interest rate, your costs will break down as follows:

Year	1	2	3	4	5
Closing Costs	$0	$0	$0	$0	$0
Payment	$1,135.58	$1,135.58	$1,135.58	$1,135.58	$1,135.58
Total Interest Paid	$10,932.76	$21,713.54	$32,333.78	$42,784.42	$53,055.89
Total Cost	$10,932.76	$21,713.54	$32,333.78	$42,784.42	$53,055.89

Using our skills of deduction, we can see that the no closing cost option wins out until sometime during year five as the interest paid column is your total cost paid at the end of that particular year.

Seeing how we Americans move every six years, it’s a toss up in regards to taking a no closing cost mortgage option or paying closing costs. During year six, paying closing costs overtakes the no closing cost option by approximately $2,000, not a figure to sneeze at in my opinion. You do also however have to take into account how that $2,000 is worth less due to inflation and how you could potentially invest that $2,000 and make it worth much more by not paying closing cost. If you are disciplined with your money, I would argue that it would make sense to take the no closing cost option if you plan on living in the house for six years or less. If however, you will be moving in six years or less, then a no closing cost option would be the best method to finance your mortgage. This of course does not take into account a serial refinancer every time the interest rates drop and you are able to take advantage of the new lower interest rate.

Something to take note of also is the fact that as your loan matures, i.e. you’ve been making monthly payments on it for some, your loan principal will decrease. Once you get too far into the loan, your total interest expense, i.e. the amount of interest you will have paid on your mortgage will be more than if you had kept the original mortgage in place. If you are however unphased by that, because it can be in the thousands of dollars, then go with the no closing cost mortgage option. For me, I will refinance because it helps with the cash flow and doesn’t cost me anything other than some time to sign the closing documents.

The biggest determinant to decide on whether to go with a no closing cost mortgage option versus paying closing costs is to look at how likely you are to be in your house for six years or longer. Once that is figured out, you should then be able to figure out if the no cost mortgage is the best way to go.

Missouri Housing Development Commission No Closing Cost Mortgage

The Missouri Housing Development Commission, MHDC, has rolled out the “Refinance Program” to help home owners who are underwater on their mortgage, or owe more than what their house is worth, refinance their mortgages and MHDC will pretty much fund your closing costs for free with certain conditions that have to be met, making the refinance a no closing cost mortgages. They also have another option which will in effect allow your to lower how much you owe on your house so that can refinance.

The way the first program works is that MHDC will give you up to 3% of your primary mortgage to use to refinance your house. That 3% can be used to cover the closing costs of your mortgage therefore making it a no closing cost mortgage. The stipulation is you have to live in the house for five years. As the five year clock ticks away, that 3% will slowly be forgiven until you owe nothing and the MHDC mortgage is closed out at the end of that five years.

You can only take advantage of the program if your payments will drop at least $100 a month or the interest rate will go down at least 1%. If you have a 7% mortgage, you have to refinance into a at least a 6% mortgage or less which in this environment is VERY doable. If you have a 6% mortgage, you’ll have to get the interest rate down to at least % which is very doable, or your payments will have to drop at least $100 a month. This may be difficult for many people although it will probably work for those who have significantly paid down their mortgage from the time they first took out the mortgage and are now close to 100% loan to value.

You cannot take out a cash-out refinance mortgage and you must receive a face-to-face counseling from a HUD approved counseling agency.

The same conditions apply above for the grant program, which is where MHDC will in effect give you money to pay down your mortgage to an amount in which lenders will loan you money. If you owe more on your house than it is worth, MHDC will give you a grant of up to 10% up to $10,000 to lower the mortgage on your house so that you can get within the guidelines to refinance your house. Let’s say that your house is worth $100,000, but you owe $107,500 on your house, they will give you $10,000 so that your loan to value will drop to $97,500 which would then put you into the FHA 97.5% refinance guidelines. Now granted, you will probably have to pay the closing costs on that kind of refinance.

You can also take advantage of these refinancing programs if your current mortgage is an ARM or Balloon without the 1% or $100 requirements. That’s great because it allows you to get out of an uncertain mortgage and into a fixed rate mortgage that you can plan your budget around.

The funding for this program is limited and it is usually on a first come, first served process. MHDC doesn’t say how much they’ve allocated to this program so I am unable to tell how many mortgages it may help out, but get there quickly to take advantage of the program. Also, you have to go through a certified lender and it appears that you may be able to take advantage of both programs at once if you need the assistance. I can’t answer for certain that question, but you should ask them.

The MHDC’s phone number is 800-246-7973.

Louisiana Housing Finance Agency No Closing Cost Mortgage

The Louisiana Housing Finance Agency, or LHFA, just released information on their housing assistance programs which also includes no closing cost mortgages options. The LHFA is funded just like other state and local housing agencies in the fact that their programs are usually funded via offering bonds, then taking that money and funding their programs. As expected, with the current financial situation our country finds ourselves in, LHFA was unable to raise as much money as they have in the past, in this case, only $25 million. While a large sum of money, if you consider the average asking price of a Louisiana home right now per zillow.com is $179,900. That will purchase almost 139 homes which also does not include the administration of the programs.

The program I am specifically looking at is the “Assisted Program Loans” which currently charges 6.1% on the mortgage loan, but will also provide a grant of up to four percent of the purchase price of the house. If we take that average asking price in Louisiana, the grant will provide $7,196 towards your closing costs, down payment, or prepaid items. If we take the average closing cost expense for Louisiana of $2,851 per Bankrate, then that leaves $4,345 that you can apply elsewhere, making your mortgage through LHFA a no closing cost mortgage.

You can then apply the $4,345 towards your prepaid costs such as your home owners insurance and property taxes which would obviously help out. You could also use it to help out with your down payment if you don’t have enough, which would equal approximately 2.5%. If the purchase mortgage requires 3% down, then you only need to come up with 0.5% for your down payment, or $899.50 to purchase the house. You can mix and match to fit your needs.

The numbers I am throwing out there though is only applicable for the average home asking price that I got from zillow.com. If the home purchase price is less, then obviously the dollar numbers will change, but the percentages don’t change.

There are income limits to this program which depends on the size of your family. Looking on LHFA’s website however, it appears that the numbers have not been adjusted for the latest time period because it does not line up with the numbers quoted on an article on WBRZ’s website article.

If you haven’t been living under a rock recently, you probably know about the $8,000 tax credit that is currently being offered for first time home purchasers. The definition of a first time home buyer is someone who has not purchased a home in the past three years and who does not own a house. Well, under the “Low Rate Homebuyer Tax Credit Program” offered through LHFA, they will front you $5,000 of that tax credit to use as a down payment or as closing costs for the purchase of your house. Again, making the program a no closing cost mortgage program. You will however have to pay the $5,000 back, probably once you’ve filed your taxes and received the money back. It appears that the loan would be a 0% interest no payment type of loan. If you don’t pay it back by June 30th 2010 however, the loan will start charging interest at 7.6% and it will appear as a second mortgage with the recorders office.

The great thing about this however is that you get to use other people’s money at 0% interest which is awesome because that is cheap money. One drawback to the tax credit however is it is only good until December 1st 2009. You have to have already purchased your house. Well, home purchases can take up to three months. If that is the case, then you need to have your offer accepted and mortgage started here in a couple days so that you can meet the December 1st deadline.

The $8,000 credit is also based on 10% of the purchase price of your house. If the purchase price of the house is $65,000 for example, your credit will only be $6,500. Still enough to take advantage of the credit, but some money is being left on the table. I’m not advocating you stretch yourself to get the rest of that credit, but if you are stable and can support a larger payment, you may want to look into taking advantage of the full tax credit. With the average price of Louisiana home prices being $179,900 however, the full $8,000 credit will be applicable to most Louisiana home purchasers.

You can of course also call LHFA and see what the requirements would be with the current plan. Their phone number is 225-763-8700. Remember, cash in your pocket is important so try and finagle yourself into a position so that you can take advantage of the LHFA programs to get yourself into a no closing cost mortgage.

Fremont Bank No Closing Cost Mortgage

Fremont Bank is a bank out of the Bay Area, as in San Francisco Bay area, and actually, from Fremont, and hence the name, Fremont Bank. They have 23 locations throughout the Bay Area. Because this site is mostly about mortgages, and specifically, no closing cost mortgages, and no closing cost mortgage refinance, that is what I’ll be concentrating on.

Because Fremont Bank is a relatively small banking institution limited to a small geographical area within the United State, they only lend in California, Nevada, and Oregon, it may not be useful to you unless you live in one of those states or are planning on moving to that area. Note, in Oregon, they only lend in Deschutes county, so it’s not even available to the whole state.

Currently, as of August 26, 2009, Fremont’s website states that their no closing cost mortgage rates are 5.25% for the 30 year fixed rate mortgage and 4.625% for the 15 year fixed rate mortgage. The APR is also set at the same rates which is indicative that there are no closing costs on these loans.

We know this because the APR has to show what your effective interest rate would be if all the costs to acquire the loan was included in the interest expense that you incur by taking the loan out. For example, and I’m going to use nice round numbers, let’s say you take out a loan for $100,000, and you only take it out for five years. Assuming you make all your payments on time, your total interest expense would be $13,227.40 which would equal 5% interest on your loan.

If the mortgage cost you $2,000 in closing costs, we would add the $13,227.40 with the $2,000 coming up with a total of $15,227.40 in total cost for your $100,000 loan. Your effective APR, or Annual Percentage Rate would be 5.819%. So you can see how your closing costs can affect your APR. The reason why it is so high is because your payment timeframe is short, in this example only five years. Now if we took the same numbers above and extended your mortgage payback timeframe to 30 years, your new APR would be 5.175% because that $2,000 would be amortized over the 30 years instead of the five years.

Back to Fremont Bank, the terms for this no closing cost mortgage is as follows:

- You may be required to pay an application fee. Now this is not too bad because Fremont Bank will refund or credit the application fee if/when you close your mortgage. I’ve only seen one reference, and the amount was only $300.00.

- This offer is only available for existing loans with no cash out and no subordination of non-Fremont Bank liens, like HELOC’s or HEL’s.

- What this means is you have to have an existing mortgage and you cannot pull any money out of home equity with this loan. You also cannot have a HELOC or a HEL from any other lender. If you have an existing HELOC or a HEL from Fremont Bank, they may allow that, but that would be a question for them to answer.

- The rate above is quoted for a $150,000 mortgage loan. I don’t know if it will get lower or higher if the loan amount is different or not.

- The LTV, loan to value, limits are as follows:

- 30 year is 60%

- 15 year is 80%

- This rate is also only available for owner occupied, single family homes in California with a 30 day rate lock. Again, if you are in Nevada or Oregon, the rates could be different, but I don’t know.

- The minimum loan amount is $125,000 and the maximum is $417,000.

With their list of requirements, I went to their rates page and ran some scenarios for all three states and it appears that even for $125,000 in all three states, the no closing cost option is still only 5.25% so everyone should be in luck.

There does not appear to be any escrow requirement from Fremont Bank if you refinance through them with the appropriate requirements. All this means is that you pay your own taxes and insurance instead of paying it to Fremont Bank and then they make the payment on your behalf. What you could do then is save the money in a high yield savings account and earn interest instead of the bank earning the interest.

They also appear to offer ARMS which also have a no closing cost option available to them. ARMS are only a good idea if you intend on living in the house less than the term of your fixed rate. Even then, if the timeframe gets to far out, let’s say five to seven years out, it would probably be best to take out a fixed rate loan because of the peace of mind it will afford you in case your situation changes. Also, with rates as low as they are currently, it would be crazy to look for an ARM. While I don’t claim to be Nostradamus or a psychic, interest rates are pretty freaking low right now. Why chance the potential that interest rates will go up?

The no closing cost option also applies to interest only, IO, loans. Now these are frankly just suicide unless you are GUARANTEED a huge rise in your income. Then again, if you are stretching yourself to afford a house on a IO loan, personally, I don’t believe you can afford the loan. No offense, but if you cannot afford a 30 year fixed mortgage loan, you can’t afford the house/loan amount. Find a smaller/cheaper house.

Fremont Bank also participates in Community Lending, these are those first time home buyer programs usually offered through your state or local government with down payment assistance or artificially lowered interest rates subsidized by taxes or HUD. They also claim that they have no closing cost options available on the Community Lending section of their mortgages. For these loans, however, there are additional requirements you have to meet so that they are helping lower income/disadvantaged individuals. For more details, you should contact the Fremont Bank mortgage department.

In the end, I have never heard anything negative about Fremont Bank, which doesn’t mean there does not exist any disgruntled customers as you cannot always please everyone. But the experiences I have read up on are positive and that Fremont Bank was a good deal in regards to getting no closing cost mortgages through them.

Bank of America No Closing Cost Mortgages

Bank of America is a VERY large bank that offers loans, deposit accounts like savings, checking, money market accounts, personal services, mortgage products for instance like a Bank of America Home Equity loan or a Bank of American mortgage refinance; you name a service that a bank could potentially offer, and Bank of America probably offers it. Bank of America is also usually known as BofA or BOA, using the initials from it's name, Bank of America.

The service that I'll be discussing of course are no closing cost mortgages offered by BofA and how to potentially go about getting one from BofA.

Bank of America purchased Countrywide Financial last year, in 2008, and became the largest lender as well as servicer of mortgages in one well swoop. By becoming the largest lender in the nation, the potential for BofA to offer great rates is there, their website however in my opinion does not allow for rates. Per their website, I could not find a no closing cost mortgage rate offering from BofA, no closing costs in the sense that I've been discussing in previous articles and like Wells Fargo does. Between two large, and now one lender, neither of them has a no closing cost mortgage available, at least on their website as an option.

I have called in the past to a Bank of America bank branch and asked a local mortgage representative and they made me believe that you could get a higher interest rate to get a no closing cost mortgage. Now, your rate will probably go way higher than it should because of the fees and costs associated with acquiring a BoA mortgage. Not to mention the fact that in my opinion, BofA mortgage rates are not the most competitive to begin with. While they don't appear to be too excessive, the higher fees with the higher, par, or starting interest rate on their mortgages make the proposition too expensive. Again, you may find a good deal with Bank of America because I know they do have them on occasion, but in regards to a BofA no closing cost mortgage, they don't have them.

Countrywide, who was acquired by Bank of America, did have a mortgage program that was a play on words and was promoted as a way of refinancing your mortgage with no closing costs. The details revealed however that you were still charged closing costs, but those costs get rolled into your mortgage. That was of course in the past, but I believe you still can do the same thing with Bank of America. In effect, what happens is if your mortgage was for $100,000, you would actually get a loan for $103,000, with the $3,000 going towards your closing costs. What that does though is require you to pay for your closing costs over 30 years or however long your mortgage is for. I don't know if this program is still available or not with any certainty, BUT, this program was usually only available on BofA mortgage refinance loans. I can't comment if it is or was available on purchases, but I wouldn't think so because then that would take your loan to value amount beyond 100% unless you put money down when you purchased your house. If you put money down on your house purchase though, you could always divert money to your closing cost instead of lowering the amount of your mortgage. I however think that this is not a good way getting your mortgage.

I can see some smart people reading this and saying, but if you take a no closing cost mortgage, your going to take a higher rate anyways and pay for your mortgage closing costs anyways. I say, very true! HOWEVER, with no money out of your pocket for that no closing cost mortgage, how long do you have to wait until you find another better deal before fretting about how much you all ready put towards your closing costs? How long does it require you to figure out your payback period? How long before you ACTUALLY start saving money on your mortgage.

As soon as I close on a no closing cost mortgage, I already know my payback period and I don't have to horse around with trying to figure out my payback period. I'll let you in on the secret, my payback period is 0! That's right, because no money came out of my pocket, then I don't have to try and figure out how many months to divide into zero because I had zero closing costs. Now what's the argument?

I'm sure that the next thing your thinking is, yeah, but then you'll pay for that higher rate for a longer period of time, potentially even, up to 30 years. That's true. But the average American moves approximately every 7 years. Not a concern really, UNLESS you plan on living in that house for the rest of your life or, 30 years, then heck yeah, get that mortgage with a point or two and take that lower payment and pocket or save the rest. That's where paying points and closing costs make sense, if you intend to stay in your house for a long period of time. Otherwise, stick with minimal closing costs to save cash in your pocket for other items.

One of the reasons why no closing cost mortgages are also drying is because of the Yield Spread Premium, or YSP, is getting smaller. One way of looking at the YSP is like a commission that a lender will give a broker, in essence, for getting a consumer, that's you, to take a mortgage at a given rate. So for instance, in today's market, you may be able to get a 30 year mortgage at a fair 5.5% interest rate. Well, if the mortgage broker can get you take a higher rate, then the Yield Spread Premium is then paid to the broker as a commission. In reverse though, if the broker is playing honest, then you can pay for a lower rate. You can also see how much the YSP is by checking your HUD-1 statement that you receive at closing. Many places don't want you to pay attention to it so they will skip over it, but it will be disclosed to you at closing, just not as explicitly as I think they should, this is what the broker is going to make when you take the mortgage loan.

The YSP however is what allowed brokers to offer no closing cost mortgages. They would share the commission with the borrower and get lower closing costs for the borrower. The reason why the no closing cost mortgages are drying up is because lenders are no longer offering the fat 'commissions' that they used too because the market has changed.

That's all I'm going to say about the Yield Spread Premium at this time. I'll write another article discussing the YSP.

In the end however, I'm fairly certain that at this point in time, Bank of America, or BofA, does not have a true no closing cost mortgage. This does not mean you cannot get one of their brokers to setup one for you, it just means you may have to speak to a couple different brokers before you get it. Make sure you don't fall into the trap of financing your closing costs into your mortgage because that's a lot of interest you'll be paying for that privilege. And only get a no closing cost mortgage from Bank of America if you don't intend on living in the house for a very long period of time; because sometimes, it does make sense to pay closing costs on your mortgage financing, regardless of the lender. Just make sure the rate is competitive, unlike what BofA advertises for their mortgage rates on their website.

My Wells Fargo No Closing Cost Mortgage Refinance

I know it's been a while since I last posted, but I just wanted to say that my mortgage with Wells Fargo and their no closing cost mortgage went uneventfully. I do have some comments to share about them that I thought was frustrating.

I applied sometime at the end of March I believe. The process was relatively painless except for the fact that I felt like there was NO outreach from WF and my refi. I had to keep calling Wells Fargo's call center to find out what they needed, what I needed to do, anything to keep my process rolling. I did not even speak to my loan processor one time. This is definately NOT for the consume who needs their hands held to complete the refinance process.

In the end however, I randomly received a package from WF with my closing documents in it. There was two packets in the package that I received. Both of them were the same thing, but one had a note that the package was for my records, and the other packet was the one to be signed and then sent back to Wells Fargo for them to process. Although I was expecting a package, it was definately not like, it's supposed to be here on such and such date, it just appeared via UPS, not to be confused with USPS.

I had to take the package that needed to be signed to a notary, then sent back in the prepaid return package and then dropped off for UPS to send back to Wells Fargo. I didn't want to pay any notary fees, because I'm a frugal individual, and ended up calling one of the Wells Fargo branches here in town. At first, I would need an account to get the notary service for free. Fine, I'll slap $25 in an account to ge the service for free. Then I found out that if the documents are Wells Fargo documents, they would do it for free! Yeah, that's what I'm talking about! I drove my happy butt to the branch and signed and was out the door in about 20 minutes.

I placed the package in the envelope and dropped it off at an UPS drop site and was done. I again, didn't know how long the payoff would take, but I checked yesterday and the payoff has apparently cleared my old mortgage lender because the balance is $0.

I now am waiting for refunds from my old lender for my escrow balance and any overpayment that may have occurred to account for interest expenses that were missed. I am also awaiting for an account statement so that I can setup online access via Wells Fargo's website and then I'll be happy.

In the end though, I was expecting a little more hand holding than occurred only because mortgages are large transactions and every where else you get a mortgage, the people your working with want to get the transaction completed. If I was told I would be on my own more so, my expectations could have been set so that I wasn't caught off guard.

Now this transaction was good for me because my payment dropped almost $150 per month. Now that is a bit of a myth, but let me explain. I was paying $75.xx a month for PMI with my old lender, so there's half the savings. The other half came from a slightly lower interest rate, 5.875% down to 5.5%, and the reamortization of my mortgage back out to 30 years.

See, once you get into years 3-5, more and more of your mortgage payment starts getting applied to principal instead of the interest. Approximately $150 per month was getting applied to my mortgage principal. With the new mortgage though, I'll probably be somewhere in the high $100's again. Oh well, that's just the way things roll.

I only did it because I wanted to increase my cashflow. If I want in the future, I can always pay more money to principal and get the loan paid off quicker. Right now though, it's all about the cash flow! With the economy the way it is, a smaller mortgage is easier than a large payment. The other benefit now is my taxes and insurance is no longer escrowed. I can now put that month amount into my OWN savings account and collect the interest for myself.

In the end, I got what I wanted which was a no closing cost mortgage with a lower interest rate and a lower payment amount by about $150.00. If your looking for cashflow, I would highly suggest you look at Wells Fargo's no closing cost mortgage because it is pretty painless after all and requires NO money for your closing cost. Your loan balance doesn't even get increased. You do however have a higher interest rate to pay for that benefit, but if you don't know how long you'll be in your house, in a falling interest rate environment, and a house you will not own for a long time, a no closing cost mortgage is the best way to go. If however, rates are pretty stable or they are going up, and you will be staying in your house for a while, then pay points and closing costs will be the way to go.

In the end, my Wells Fargo no closing cost mortgage went well and I do encourage others to go with the program if it fits your needs and you do it for the right reasons that I mentioned above.

How does a mortgage refinance work?

If you’ve decided that you want to refinance your mortgage, for whatever reason, some examples of reasons to refinance are annotated over at Boston mortgage refinance, but you can refinance with a no closing cost mortgage by taking a higher interest rate. Like I’ve mentioned in prior posts, if you don’t believe you will be in your house for longer than a few years, a no closing cost mortgage is the way to go so that your not sitting on large closing costs that you incurred by refinancing.

So how does a mortgage refinance work? I’ll try to explain it in a way that is easily understandable and you can use this information while you refinance your mortgage. Be mindful that different states and localities have different ways of doing business, so if you live in Philadelphia, you may want to check up on important Philadelphia refinance information.

In the beginning, you found a house you wanted to purchase and used a purchase mortgage to acquire said house. You went with a broker or lender and filled out the paperwork and everything worked out well and now you ‘own’ your house, or are making payments towards owning your house. Since you purchased your house the mortgage rate has gone down or because of reasons listed above, you have decided that you want to refinance your mortgage to a lower rate.

You should research different lenders and speak to a couple of mortgage brokers to get a handle on the fees they charge to give you a loan. When it comes to fees, there are lender fees, and then there are third party fees. Lender fees are the fees that the lender charges you to give you a loan. They do of course have employees that they have to pay and overhead that they have to pay for as well. The third party fees are the fees charged by people or companies to do work on your loan, for instance the appraiser or title company. Lender fees are controllable by the lender and you can work on those fees with the lender. Third party fees however are not controlled by the lender and they can’t do anything about those fees.

Once you have decided to apply for a mortgage, by law, you are supposed to receive a GFE, or good faith estimate, from the lender outlining all of the different costs or fees that they are guessing will be incurred to give you a loan. Now, I say three days and it is required by law, however, many brokers don’t usually take the time to give you a good faith estimate for whatever reason. This could also potentially be a reason of concern because in my opinion, it could be reflection of the quality of institution or person you are dealing with.

Once you receive that GFE, or get off the phone with the broker and or lender, they will request some documentation from you. The usual documentation requested is your paystubs for the last two months, your W-2 from the last year to see if you earned what you said you earned the year prior, and IRS form which allows the IRS to share your tax information with the lender, and a couple other forms for you to fill out. They may also want all or a few of your checking and or savings account statements to see if you have any money in the bank. They also will need to know who your current mortgage lender is so that they can request a loan payoff and ensure that the amount you are asking for is in line with what you owe unless you are wanting cash out of your house. Now this is not an all encompassing list of the documents they may request, but these forms are normal and you shouldn’t get worried about sharing this information with the lender.

While you are gathering your information, the bank will order an appraisal to find out how much your house is worth so that they are not giving you more money than what the house is worth. The appraiser may want to see the inside of the house, or they may just drive by the house, possibly take some pictures of the outside, and come up with a value for your house. If they want to see the inside of your house, they will make an appointment with you so that they can get into your house and see what it looks like. Coming up with a value for the house is not just what this person may or may not think it’s worth, but they use information from houses around you as far as how much have they sold for, then they make adjustments to come up with a value for your house. The easiest way to come up with a round about figure is find out how much the houses around you sold for on a per square foot basis. Then, average all those figures out, and then multiply it by how many square feet your house is and you have a figure to see about how much your house is worth.

If you have a HEL or a HELOC, the new lender will ask the old lender for what is called a subordination. What happens when your first mortgage gets paid off is then the second mortgage will jump into the first position. Well, if your new lender is supposed to be in first position, then they will ask the lender of the HEL/HELOC to subordinate, or jump back into second position once the original first mortgage is paid off. Lately however, individuals are having a hard time getting the second mortgage to subordinate. You may have to call and hassle them a little to get them moving and this could potentially hold off your closing until it is accomplished. Some HEL/HELOC lenders also may charge a fee to subordinate. Again, this will also have to paid for.

Once they receive this information, you loan documentation with the application will go to what is called an underwriter. What this person does is review all the documentation and ensure it meets all of the lenders loan requirements. If they don’t like something or feel that something is missing, you may get a request for more information or additional forms. Again, this is normal and nothing to be concerned with. Once this is all completed, the lender will order what is called title insurance. This protects the bank so that if anything comes up like there is a title problem, the property because unmarketable, the lender is protected, the lender is protected.

Once title is completed, then a closing is scheduled so that you can go and sign a bunch of mortgage documents and close on your house. Once that is completed, the forms are sent to the bank and you are almost finished. There is a federal law that protects the borrow from having buyers remorse called the three day right of rescission. Because a mortgage is such a large transaction and most likely the largest most of us will make, they allow you three days to write the lender back and say, never mind, I don’t want this loan anymore. Once those three days are over though, your new lender will send the money to your old lender who will then consider your loan paid off. Something to consider however, is because technically you have money from two banks, you will be paying interest on that money for three days on two different mortgages. That interest expense begins when you sign the paperwork, including weekends. SO, don’t sign your paperwork at the end of the week because you will be paying interest for two extra days while you wait for the weekend to finish. If you sign your closing paperwork on Monday, you pay double interest until Wednesday or three days. If you close on your mortgage on Friday however, your paying interest for five days. The other thing is also to close your mortgage as close to the end of the month as possible to limit how much prepaid interest you have to pay before the end of the month.

For instance, if you close on your mortgage on the fifth of the month, you will pay interest at the closing table from the fifth until the end of the month. If however, you close on your refinance on the 25th, you are only prepaying interest for five to six days only. If your paying your own closing costs, this could be a way to lower your closing costs.

Once this is completed, then the old lender will refund to you any escrow amounts that they may have been holding and make sure you get any money back that you were due because of overpayment or bad calculations. Most people should receive a refund on money although some may not receive any.

This is a shortened description of how a mortgage refinance works. If you are however going to be getting a no closing cost mortgage however, everything will be the same except for the closing costs portion because technically, you are not paying for any of that. The only thing that would apply in a no closing cost mortgage is your closing date. Again, try to get the date to occur early in the week so that you are not paying costs for two mortgages for longer than the prescribe three days.

I am currently still in the middle of my no closing cost refinance with Wells Fargo and will update once I’m finished. Everything however is still the same as I mentioned above and everything has been pretty painless.

VA No Closing Cost Mortgages are a bad deal!

Veteran's Administration, or VA loans for military personnel and individuals who have been honorably discharged from the military allow those individuals to purchase a house with no money out of their pocket, effectively making the mortgage loan a no closing cost mortgage. The cost is there and I'll hopefully show you why VA mortgages are not the best way to go.

When you get a conventional mortgage, most lenders will charge you a 1% origination fee on top of normal fees that are charged for a mortgage. That 1% is an additional charge on top of other customary closing costs like appraisal fee, credit report fee, processing fee, title insurance, etc, so that brokers can be paid and people can earn a living. While that in of itself is not bad, competition allows other lenders to not charge that fee. Ultimately however, you need to look at the total cost for acquiring a mortgage to ensure that you get a good deal. This is all not applicable of course if you are NOT getting a no closing cost mortgage.

When you take out a VA mortgage, you also pay an origination fee like I mentioned above. With VA loans though, instead of paying PMI, or Private Mortgage Insurance, you pay a fee to the VA so that they can guarantee your mortgage. BUT, if you have equity in the house or as a down payment, AND you have good credit, save your money because the VA charges the following fees to guarantee your mortgage.

Type of Veteran	Down Payment Amount	First Time Use	Subsequent Use for Loan until 09/30/11
Active Duty	None Between 5%-9.99% 10% or more	2.15% 1.50% 1.25%	3.30% 1.50% 1.25%
Reserves/National Guard	None Between 5%-9.99% 10% or more	2.40% 1.75% 1.50%	3.30% 1.75% 1.50%

So let’s take a look at this ‘deal’ that is offered by the VA. If you take out a $150,000 mortgage, you will normally pay $1,500 for your origination fee to the mortgage broker. I would argue that you can do better, but not too bad and not the topic of this article.

If you get your mortgage through the VA however, which is still done through a lender, your closing costs would be higher. I’m going to use the same table above, but replace the percentages with the dollar amount based on a $150,000 mortgage amount to show you the total cost to get a VA no closing cost mortgage.

Type of Veteran	Down Payment Amount	First Time Use	Subsequent Use for Loan until 09/30/11
Active Duty	None Between 5%-9.99% 10% or more	$3,225 $2,250 $1,875	$4,950 $2,250 $1,875
Reserves/National Guard	None Between 5%-9.99% 10% or more	$3,600 $2,625 $2,250	$4,950 $2,625 $2,250

So if you add in the $1,500 the lender will charge you to originate the loan, you are looking at a minimum of $3,375 in closing costs. What the VA allows you to do though is finance you closing costs into the amount of your mortgage. So theoretically, you could be paying interest on that $3,375 for 30 years! Now those closing costs, if paid out over 30 years at today’s rate of 5% will cost you $3148.20 in interest! So in effect, you are paying $6,523.20 to take out the VA mortgage. This is also assuming the lowest funding fee charge, so really, for Active Duty members putting down 10% or more to purchase their house! So you can see how taking out the VA loan is actually quite expensive to do. If you could save money to put down on down payment or even to pay for your closing costs out of your pocket, that would be the best way to go.

Now granted, I realize that these numbers actually apply to those individuals who only take out that one mortgage and live in their house and actually pay off their mortgage at the end of that original 30 year mortgage. Statistics show us that this is not the case and that most Americans actually move approximately every seven years. Once you are in the house though, don’t spend the money on frivolous items, save the money for that house your going to purchase in the future. The best way to keep the money in your pocket is look for no or low closing cost mortgages.

As I have hopefully demonstrated above, the VA no closing cost option is really a misnomer because the cost is large, it is just hidden in 360 small payments in regards to the closing costs being financed into the 30 year mortgage and with interest charges over that long time period, the closing costs are almost double!

Another drawback to VA mortgages is because of the increased regulation for the guarantee of the loan by the federal agencies, mortgage lenders usually charge a higher rate for the same mortgage too. So not only are you paying for your closing costs over a long period and higher cost in the form of paying interest on your closing costs, you also are looking at paying a higher interest rate for that mortgage. The payments on a $150,000 5% mortgage is $805.23 versus the higher rate of a VA mortgage at 5.125% which is $816.73. That’s only $11.50 per month, but with 30 years of payments, that’s $4,140. If you throw in the interest expense for the closing costs being financed, your looking at over $7,000 in extra interest, just for the benefit of going with a VA no closing cost mortgage. For me at least, that is no good.

If your still active duty and will be PCS’ing approximately every 2-4 years, then PenFed’s 5/5 ARM would be the best way to go or another comparable ARM because you should theoretically be moving before the 5 year ARM adjusts.. The way it works is your mortgage your rate is fixed for five years and then it resets every five years. PenFed will also cover most of your closing costs so that your out of pocket expenses are minimal. That would be the best way to go, and then you could refinance, if you had enough equity, with a no closing cost mortgage.

Many states also have localized mortgage programs for residents of their states which can offer low interest rates, low closing costs, and other benefits that you won’t find with VA loans. They do of course come with stipulations like you cannot sell the house for a certain period of time, you cannot rent out the house, etc. Check in your state to see what programs are offered that you may qualify for.

As long as you have cash in hand for down payment or closing costs, that would be the best way to go because of the cost. And because of the nature of the Active Duty military and really, the way we Americans move around approximately every seven years, getting loans for with closing costs are a big drain on your personal finances and your cash pile.

I will include more information once I have more information, but Wells Fargo has a 1-2-3 No Closing Cost refinance mortgage available for existing customers as well non customers in which they will refinance your mortgage for no closing costs as long as you fit their lending requirements. I don’t know what their requirements are, however, this is my profile:

Credit Score: Over 720

Debt to Income: Less than 30%

Home Loan to Value: Less than 65%

If you fit this profile or are similar, it wouldn’t hurt to take 20 minutes of your time and see if you qualify. I can’t vouch for the program at this point, once I close on my mortgage I will write up an article on my experience.

As you can see, with good credit and cash in your pocket, you can get a no or low closing cost mortgage with minimal costs and not get ripped off with a VA mortgage. This would be the best way for your personal financial situation and allow you to ultimately get the best deal possible. Remember though, that lenders will try and get as much money from you as possible, so be prepared to shop around to find that mortgage deal. If a lender tries to pull a fast one by changing details of the deal at the last minute thinking you will still take that mortgage, then be prepared to walk, or be taken advantage of.

As this article shows, VA mortgages are not the a good deal for mortgages out there because of minimal or no closing cost mortgages through traditional methods available out there so that can acquire a no or low closing cost mortgage without going through a federal program that actually costs more than a conventional mortgage.

No Closing Cost Second Mortgages

Second mortgages are mortgages which are in second position and can be used for a variety of things, vacation, education, remodel, car, whatever. However, I would suggest against using second mortgages for any frivolous items like cars, vacations, etc. Using the money to remodel and improve your house, or higher education would be a wise move though.

There are two kinds of second mortgages. The first one is a Home Equity Loan, or HEL. Just as the name suggests, it is just a loan with a fixed percentage rate for a fixed period of time, whatever that may be, 10, 15, 20, etc. Your payments are always fixed until the loan is paid off. Once the loan is paid off, then the lender will cancel the lien on the house and you are then again able to get another loan. This does not mean that you cannot refinance a HEL, you just have to reapply and get a new loan, which usually pays off the original HEL. Some lenders may have other requirements to allow you to refinance your Home Equity Loan.

HEL's are most useful when used for fixed items and terms because of the way they are designed. If your financial needs may fluctuate as life goes on, then a HELOC may be the best way to go to access to your home equity. Of course, the HEL also allows you to lock in a fixed interest rate. In today's interest environment, that may be the best option. There is a lender out there that is offering a HEL at 4.99% fixed for up to 20 years. Can you imagine paying 4.99% for 20 years? This does not even take into account the interest rate after you take into account the tax deduction for the interest you may pay on it. Needless to say, this is an attractive proposition because nobody can say what the interest rate will look like in 5 years or 20 years, but I doubt it will be this low. We are in uncertain times and that is why the rate is so low currently. One thing to watch out for is if you payoff the HEL too soon, in the case of the lender I mentioned above, 24 months, then you will have to pay for all of the closing costs that lender incurred. This is a pretty standard practice, so if you don't want to pay for the closing costs and make it a truly no closing cost mortgage, then make sure you keep the loan open for 24 months or whatever timeframe your lender requires of you.

The second type of second mortgage is usually called a Home Equity Line of Credit, or HELOC. This is usually a variable interest rate which adjusts as the underlying index adjusts. Many HELOC's are tied to the Prime Rate, which is currently at a very low 3.25%, with an adjustment. Some institutions have a markup, others have no markup, and yet others have a prime -1% markup. As an example, the prime is currently 3.25%, and the lender mentioned above charges prime minus 0.50%. So that institution is currently charging 2.75% for their HELOC's. That is CHEAP money, I don't care who you are, because the effective interest rate is much lower once you take into account the tax benefits for the interest deduction on your taxes. This rate will fluctuate as the prime rate adjusts in this example. With the adjustment of the rate, the payment will also adjust.

Because the HELOC's are variable, they usually let the consumer pull money out of the Line of Credit as required for a fixed period of time. Once that time has expired, then the loan becomes a fixed rate and term loan like a HEL. So your payments will then include both the interest portion as well as the principal portion, therefore, paying down the loan amount. Your payments however will not adjust because the intent is to pay off your loan in the timeframe called for in the loan. Excluding the fixed portion, a HELOC operates much like a credit card. Some lenders actually issue a VISA or Mastercard branded card so that you can access your HELOC.

HELOC's usually also come with an annual fee. This is so ridonkulous in my opinion. The beauty of competition and a capitalist society is there are many different lenders out there who also in the name of competition do not charge an annual fee. I would suggest you go and find one of those lenders and get your loan through them. The lender I referenced above does not charge an annual fee.

In today's current credit environment, many people have been finding that their HELOC's have been cut because of a number of reasons given by the lenders. The home values in the neighborhood you live in could be decreasing and so the lender deems that your LTV has gotten too high and therefore decreases your available credit. The other thing is your credit profile has changed for the worst and therefore the bank wants to limit their exposure to you because of your changed economic situation. They will attempt to close or limit your HELOC availability because of this also.

The other thing that they have been doing is just plain outright closing the line of credit. Needless to say, these actions could not be coming at the worst possible time for you and other consumers I'm sure. The only way I know to prevent this from happening is to take out all the available cash in your Line of Credit. That way you have the cash in your pocket and the lender has no choice but to keep the loan open until you make payments or pay off the loan.

Many people shy away from HELOC's for whatever reason and I understand your debt shy or don't want the temptation or whatever. However, the best time to get your HELOC is when you are fully employed and can show that you can repay the loan. If you apply for a HELOC when you've lost your job, well, that's too late. Would you loan money to a consumer who had no employment and therefore no way to pay you back. Just smart decisions on the part of the bank in my opinion. So go and get that HELOC on your house assuming you have available equity and let it sit at $0.00 balance.

I mentioned that HELOC's were primarily tied to the Prime Rate set by the Federal Reserve board. While a majority of HELOC's I've seen are indeed tied to the Prime Rate, they are not all set to that index. There are many different index's available. There is the LIBOR index and even more rare, the 1 Year Treasury Bond HELOC. The Treasury Bond rates change weekly and are therefore very administratively intensive and cost more money to maintain, and therefore not very many lenders provide this index. The LIBOR rate is not very popular only because many people are not familiar with the LIBOR index. The LIBOR is an interest rate set by banks in Europe and is charged to banks that borrow money from other banks. The LIBOR is set in the morning, and can change throughout the day though. I'm sure there are lenders out there that can and do set their index's to other more exotic terms; I would suggest staying away from them as they are not readily advertised and may be difficult to track and understand. I like the easy stuff, and the Prime Rate is easy for me.

On top of the index, I mentioned earlier, different lenders will then have an adjustment on their index. That adjustment could be a subtraction on the interest rate, no change, or an addition to the prime rate. Regardless, the margin as it is referred too is also set depending on your credit score. If you have a high credit score, you are likely to get favorable terms. If you score is not that great, you may not get the most favorable margin setup. Regardless, your credit as always, determines how much in interest your going to pay on this money. To save money overall and not only in this transaction, keep your credit score as high as possible.

Second mortgages, or 2nd mortgages, depending on how you 'say' it, are a useful tool and they should be considered when you require access to cash locked up in your home equity. Beware however, that if you are looking at going the variable rate, or HELOC, route, get the line of credit when you don't need it, because no sane lender would or should lend you the line when you have no means of paying it back. The costs to acquire a second mortgage is pretty low to free because most lenders will pay for the costs to extend the loan to you, although some may charge a yearly maintenance fee which you should stay away from.

Investment Property Mortgages

Investment properties are a good way to increase your networth, however, unless you have cash sitting around, you're going to have to take out a mortgage to purchase the investment property. The type of mortgage you will have to take out are called investment property mortgages. These mortgages are usually more difficult to acquire because from the banks perspective, they are more risky because the owner of the investment property could just stop paying on the mortgage because they don't have the incentive to maintain a roof over their own head.

In the past, investment property loans normally would require the investor to put down at least 20% to purchase the property. In the recent past however, due to the overwhelming availability of credit, some investment property mortgages required no down payment and allowed individuals to purchase property with no cash out of their pockets. Due to the current credit crisis that the nation is experiencing, investment property mortgages have started going back to the normal 20% down requirements if not more. You also would require excellent credit.

The whole $0 down payment for even owner occupied housing now a days require down payment and usually closing costs to be paid to get the mortgage. This is all because in a normal environment, the purchaser of property should have their own skin in the purchase of their own houses. In the past, those with minimal investment in the property would be quick to stop paying on the investment property mortgages if they fell into economic difficulty. To help protect the banks position, they require real estate investors to put down 20% to help reduce the risk and make the investor more likely to keep paying on the investor mortgage. They are after all, hopefully collecting rental income which should then apply to the mortgage and allow the investor to make money and the bank to receive their monthly payments. Of course, economic situations can change for the worse and make it difficult for the investor to continue to make those payments. If you had to decided on making the mortgage payment for your own house versus making the payment on your investment, which decision would you make. That is why investment property mortgages are riskier for makes to make.

Needless to say, because of the need for down payments on the part of the investors, there is no available no closing cost mortgages available for those of us who want to purchase investment properties. Needless to say, this does not bode well for those of us who are cash poor but credit rich to be able to acquire investments. This is probably for the best because there are many individuals out there who are out to make the quick buck, but are also quick to walk away if the investment does not pan out. These are rational thought processes in my opinion, however, they do not bode well for the different parties involved.

This presents a problem for those of us who seek investment properties. Well, another tactic you can take is to get a Home Equity Loan, HEL, or a Home Equity Line of Credit, HELOC, to come up with your down payment to purchase the property that you are looking at purchasing. This assumes that you will be able to pay your monthly payments and the payments do not present a burden on your daily living expenses. Currently, you can acquire a no closing cost second mortgage from various institutions, not everyone can or will qualify for these loans however because of the tightened restrictions.

If you currently own your own house and are still sitting on a pile of equity in your house though, you could potentially refinance your house and pull some equity out to make that down payment on that investment property. You could also just do a no closing cost refinance mortgage, get your cash out of the house, and then apply the cash to the purchase of one or more investment properties which fit your investment profile.

There are mortgages out there that are well suited for you, but there are also mortgages out there that would not be well suited for your needs. If you are looking for increased cash flow, refinancing your mortgage to a lower rate and extending the loan term works, but you could potentially pay more in interest over the life of the loan. One thing brokers do to make a no closing cost mortgage is roll all of the costs into the loan. For instance, if you were going to refinance a $100,000 mortgage, and closing costs were $2,000, the new loan amount with the closing costs rolled into the loan would be $102,000. The negative aspect to that is that now you could potentially be paying interest on the closing costs for up to 30 years. So that $2,000 actually ends up turning into $6,000 or there about because you’ve paid interest on it for 30 years. In the end, that figure is a rip off, but that is my opinion.

The best thing to do for investment property mortgages is to save your money or pull it out the equity in your own house through a low interest rate HEL or HELOC. I would lean towards a HEL because that is a fixed interest rate for a fixed period of time versus the HELOC interest rate is subject to move based on the underlying interest rate the HELOC is based off of, usually prime rate. At this time, the prime rate is at an all time low and who knows how long it will stay there. One thing that I am fairly certain of is that the rate has a better likely hood of going up because it cannot go down much further.

Investment property mortgages also carry a higher rate of interest to compensate the lender for the higher risk as well. For instance, the rate difference can be as high as 1%-2% higher than an owner occupied home mortgage to include the higher closing costs. Investment property loans are usually defined as property that is four units or less. If you go over the four unit threshold, that moves you up to the commercial property loans which are a whole another beast that this blog is not going to discuss. Needless to say, these loans are like business loans and you have many more hoops and costs to go through to acquire a commercial loan. Doesn’t mean it cannot be done, it’s just that much more difficult.

Another restriction is imposed by Fannie Mae and Freddie Mac. They are government sponsored agencies and because they purchase a majority of the mortgage loans made to individuals out there, they can dictate which loans they will purchase and indirectly, dictate mortgages that individuals can take out. Per Fannie Mae and Freddie Mac guidelines, they will only allow four outstanding mortgages to be taken out by an individual at any one time. The only way to get around this restriction as far as I know is to either pay off the mortgages so that you can get another property. If you don’t have the cash available, one way of doing that is getting the HEL second mortgage like I mentioned earlier and transfer the debt onto your own personal residence. You may also be able to potentially get an investment property HEL on the investment property and get around the four property restriction.

Regardless of the many restrictions out there, there are options to get around restrictions and different ways of doing things. Like they say, there is many ways to skin a cat, and this would be one of those situations in which the saying applies. Regardless, if your looking for an investment property mortgages, the best place would be to try locally with banks in the area you live in, then try elsewhere. In the current credit environment however, investment property mortgages are difficult to come by, but they are not impossible.

What is a no closing cost mortgage?

No closing cost mortgages are mortgages in which you do not have to show up at the closing table with any cash of your own. Usually, this is accomplished during a refinance, purchase mortgages can be setup to also be done as a no closing cost mortgage, it is just not as easily available for a purchase mortgage.

When I say no closing cost mortgage, that’s exactly what I mean. No origination points, no discount points, no fees what’s so ever. While the money the broker makes will still be the same, you are agreeing to take a higher interest rate to help pay those costs you normally would pay with a normal mortgage transaction. You will have to cover prepaid items however, like your prepaid interest to cover the interest cost until you make your first mortgage payment as well as the tax and insurance payment requirements if needed. These are not fees or costs, but they are normally covered when you make your monthly mortgage payment.

On a refinance, if your previous mortgage was holding your tax and insurance payments in escrow, while you would pay the escrow during your closing transaction, after the prior loan gets paid off and they process the payment, the old mortgage note holder will then usually issue a check to you with your escrow balance. So in the end, you only make a payment for the interest that would be owed between closing and your first mortgage payment.

As an example, if you close on your mortgage on the 15th of the month. The mortgage company is not going to let you have that money for free. So for the prepaid interest, you are actually making the interest payment from the 15th until the end of the month so that when you make your first mortgage payment, the interest has been covered with your prepaid interest. Needless to say, your going to pay for it one way or another, you just prepay it at the closing table.

When figuring out the interest rate for your mortgage, the bank or broker will have a rate sheet. What that sheet shows is the different interest rates the bank offers and how many points the different interest rates costs to get all the way to 0 points. On the other side of that 0 points however, are the points that a bank will give a broker to get the customer, that is you, to take a higher rate. So for instance, if 5.0% is zero points, well, then 4.75% may cost you 0.875% in points to lower your rate. On the flip side, if the broker can get you to take a 5.25% at 0 points, then the bank may pay the broker 0.25% of your mortgage.

For illustration purposes, this is what I mean.

Interest Rate	Points
4.75%	0.875%
4.875%	0.25%
5.0%	0%
5.125%	-0.125%
5.25%	-0.25%

So using the table above, you can see that for the higher interest rates, the bank will rebate money back to the broker for the higher interest rate. If you wanted a lower interest rate, you can see how much it would cost you as a percentage of your loan amount to get that lower interest rate. If you are dealing with a broker, the broker may change the figures above to allow them to make more money off of your mortgage.

Note: These numbers are just examples and therefore should not be taken as gospel, not to mention the fact that rates can and do adjust throughout a business day as well.

Now, how you can potentially get that no closing cost mortgage or refinance is, instead of taking the 5.0% 0 point interest rate, you could potentially take a 5.5% mortgage interest rate and the rebate is shared between you and the broker to lower you closing costs or give you that no closing cost mortgage your looking for. There are of course drawbacks to this option, you are paying a higher interest rate and therefore more in interest each month. If you are not going to hold the mortgage for a long period of time however, a no closing cost mortgage could potentially make sense. It limits your closing costs and it allows you to get a lower interest rate than what you may have been paying earlier.

The no closing cost mortgage also gives you the flexibility in a falling interest rate environment to refinance as much as you want because ultimately, you do not have to worry about closing costs and you don't have to concern yourself with payback periods because as soon as you make your first payment, you are saving money, unlike others who may have had closing costs. There are many different ways of acquiring a no closing cost mortgage as well. The statements I made above reference a typical mortgage that most everyone is aware of.

The other potential option is to get a Home Equity Loan, or HEL in industry parlance, offered by an institution with no closing costs. You use the proceeds of the HEL to pay off your traditional mortgage and the HEL then jumps into first position and you only pay the HEL as your monthly mortgage payment. As an example, Pen Fed currently is offering a no cost HEL for 4.99% on a 20 year payback period. This would allow you to get that potential lower interest rate for no cost.

You could also use the higher interest rate to get a lower closing cost with a shorter payback period instead of going with a true no closing cost mortgage. This still provides flexibility, but not as much flexibility as a true no closing cost mortgage would. So instead of paying 2-3 thousand in closing costs, you could choose the rate which allows you to pay for instance, only 1k in closing costs, in addition to your prepaid items.

The drawback to a no closing cost mortgage is you give up the ability to get the lowest interest rate and therefore pay less in interest and lower payments. For most people however, this should not be a problem seeing as how the average homeowner moves every six years per the National Association of Realtors. If you cannot break even prior to two years however, it would probably be best to limit your closing costs as much as possible. If you plan on staying in your house longer than two years, then it may make sense to pay closing costs and get that lower interest rate. If your not sure as I currently am, then stick with the no closing cost mortgage because it helps keep money in your pocket until you figure out what your going to do.

With a no closing cost mortgage, this allows you to keep money in your pocket and get a relatively good rate. Not necessarily the BEST mortgage rate out there, but it allows you to lower your rate for very little cost if you are looking at refinancing and lowering your payments. While a no closing cost mortgage will give you the lowest interest rate, the option does have it’s positive aspects and has a place when financing or refinancing your house.