A no-closing-cost mortgage means you do not pay any closing charges at the moment the loan is issued. Instead, you can finance the costs or take on a higher interest rate.

Buying a new home is an exciting investment, but there are a lot of hidden costs and fees that first-time buyers may not know about—including closing costs. These are often expenses related to taking out a mortgage, including lender fees, government recording fees, home appraisals, and more.

While a no-closing-cost mortgage can sound like a dream, it isn’t as simple as the name suggests. Closing costs are unavoidable, but there are ways to redirect the fees elsewhere when you do finally take out your mortgage.

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What is a no-closing-cost mortgage?

A no-closing-cost mortgage, also known as a zero closing cost mortgage, is one in which your lender provides the money to cover your home's closing costs.

In exchange, you normally have to pay a higher interest rate or have the loan amount increased to cover the closing costs.

How does a no-closing-cost mortgage work?

There are two methods in which lenders structure no-closing-cost loans:

You can finance the closing costs. The lender will apply your closing fees to your loan balance, so you pay slightly higher monthly payments. You'll be paying these closing expenses with interest for the life of the loan, which might be 15 or 30 years.

Your lender can absorb closing costs in exchange for a higher interest rate. Again, you'll pay slightly more monthly, and your overall interest expense will be higher throughout the loan's term.

How much are closing costs on average?

Closing costs are generally around 2% to 5% of the loan amount.

For a $250,000 home, for example, you could pay anywhere between $5,000 and $12,500 in loan settlement. Additionally, closing expenses vary greatly based on your region and scenario.

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Can you buy a house without any closing costs?

Unfortunately, closing costs must be paid one way or another.

You must decide whether paying in cash when you sign your loan or including these fees as an additional expense in your monthly mortgage payment, is better suited for you and your financial situation.

Is a no-closing-cost mortgage right for you?

There are a few things to keep in mind if you’re debating whether or not a no-closing-cost mortgage is best for you.

If you want to remain in your home for an extended time, a no-closing-cost mortgage will only cause you to pay more over the loan's term and will result in higher interest rates.

If you plan to relocate or refinance your mortgage within 3-5 years, the total cost of adding closing expenses into your loan may not be a concern.

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Deciding what to do when it comes to your mortgage and closing costs can be a complicated (and pricey!) process. Your finances can be impacted in the short and long term depending on how you choose to allocate your closing costs, and things can add up quickly.

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FAQs

Who offers no-closing-cost mortgages?

No-closing-cost mortgages are offered by many lenders.

When considering whether to lend money to a borrower, lenders will consider a variety of variables such as credit score, credit history, employment status, and much more—these can all play a role in determining whether you’re approved for a no-closing-cost mortgage as well.

Are there any other options for finding a low-cost mortgage?

If a no-closing-cost mortgage isn't for you, there are other options to secure a low-closing-cost mortgage.

You can try to negotiate with your lender to reduce or waive fees, and many towns and states provide programs for first-time homebuyers to aid with down payments and closing fees. Also, depending on the circumstances, some sellers might agree to assist by covering a portion of the closing costs.

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