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 No closing cost loans: Fact or fairy tale?
  Reviewing no doc and low doc loans
By the EchoBay Loans Expert
 No closing cost loans: Fact or fairy tale?
Dear EchoBay Expert: I see these adds online and on TV that promise "no closing cost loans". Do no closing cost mortgage loans really exist or is this false advertising?

Dear Loyal Reader: Nothing in life is free and this is especially true with mortgage loans. While many advertise no closing cost loans, it is rare to find one where this is truly the case. There are several ways a lender can make it appear there are no closing costs.

1. The lender may roll closing costs into the loan amount.
This may be one of the most common ways to hide fees. By advertising no closing costs, they could simply mean that you do not have to pay closing costs out of pocket. Instead the fees will be added to your loan amount and you will pay them over the life of the loan.

2. The lender is classifying only certain fees as "closing costs".
In this case, when the lender says no closing costs, they may be referring to origination fees or points. They may consider appraisal fees, attorney fees, title fees, etc. as a separate fee and not a closing cost. Many times the lender requires an application fee and/or a credit report fee just to process your application. You can check your good faith estimate to determine if you have really found a no closing cost loan.

3. The lender will increase the interest rate.
In some cases, you may find there are no fees when you look at your good faith estimate. However, rest assured your lender is getting their money. Some fees that lenders charge must be paid out to a third party such as attorney fees or title fees. You can bet the lender is not going to pay these fees for you out of the kindness of their heart.

To make up for not collecting these fees, they may increase the interest rate instead. A simple way to find out is to ask your lender what your interest rate will be if you pay traditional closing costs.

A little closer look and you will find that no closing cost loans do not exist but because of careful wording, the lender is not engaging in false advertising either.



 Reviewing no doc and low doc loans
Dear EchoBay Expert: Is a low doc or no doc loan the best option for me since I've been self-employed for almost a year and my business isn't generating much income for me to prove yet?

Dear Loyal Reader: If you won't be able to prove your income, a no doc or low doc loan will be your best option as long as you have the required down payment and your credit is in good shape. Many of the lenders that offer low or no doc loans require substantial down payments that can be as much as 25 percent of the purchase price of your home, although some lenders will allow you to put as little as five percent down if your credit history is absolutely spotless.

You should also expect the costs of the loan to be a bit higher than a traditional mortgage loan. There are different types of low doc loans, and the less information you are required to reveal means the more you're going to be paying for the loan. In the simplest terms, you're paying for your privacy. The interest rate of low doc loans can be about one-half of a percentage point higher than conventional loans and true no doc loans may be a full one percent higher.

If you have the down payment available, the credit to qualify and you don't mind paying a higher interest rate, then this type of mortgage program is just what you need to get into a new home while your new business is still in its infancy stages.


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