No Closing Cost Loan Example

I've gotten multiple requests to clarify the recent no closing cost refinance loan I just completed. Its a bit of a vague term and could be done different ways, but the end result is that there are no out of pocket loan costs to the borrower for the refinance. In my mind that doesn't mean rolling the closing costs into the loan balance which is a very important distinction, but easy to confuse.

Here is a summary of our HUD line item settlement charges from closing:

Settlement Charges

HUD

Description

Amount

801

Origination Charge

$ 3,675.95

802

Credit from Lender

$ (5,566.32)

804

Appraisal Fee

$ 430.00

805

Credit Report

$ 10.95

901

Daily/Prepaid Interest @ $21.00/day for 2 days

$ 42.00

903

Homeowners Insurance Premium

$ 660.00

1001

Initial Escrow Deposit

$ 475.21

1102

Closing Attorney

$ 350.00

1104

Lender's title insurance

$ 333.00

1109

Courier fee

$ 50.00

1201

Government recording charges

$ 80.00

 

Total Settlement Charges

$ 540.79

 

Total Prepaid Items

$ 1,177.21

 

Net Closing Costs (excluding prepaid)

$ (636.42)

Couple key things to notice:
-Prepaid items like Homeowner's insurance, property taxes, escrow, prepaid interest aren't refinance costs -- your obligated to pay those with your existing loan whether you refinance or not so I wouldn't include them as part of the costs to refinance. In this example they totaled $1,177.
-The Lender in this case is providing a credit of $5,566 or .9% of the loan balance for taking a slightly higher interest rate (3.5% vs market rate with no credit).
-The mortgage broker makes their money via the origination charge which is part of the closing costs.
-The refi closing costs total $4,929 - primarily the origination charge, appraisal fee, credit check, title insurance, closing attorney, courier charges, and government recording fee in the example above.
-The credit provided by the lender is in excess of the closing costs so I netted an additional $636 that also helped offset some of the other prepaid items.

Related in Real Estate:

3.5% 30 Year Fixed No Closing Cost Refinance (Nov 27, 2012) We finally closed this week on our 3.5% 30 year fixed refinance with no closing costs (no closing costs = a credit from lender/broker large enough to offset refinance costs). It took us over 2 months (67 days from initial...

Appraisal Appeal Unsuccessful (Nov 05, 2012) Not much of a surprise, the appraiser dug in and didn't budge after we submitted our appraisal appeal: Our more favorable comparables were based on county property records. Interestingly the appraiser indicated the MLS data is generally considered more accurate...

Appeal Your Real Estate Appraisal (Oct 23, 2012) Last week I received the results of a recent appraisal of our home for a refinance. I was shocked to learn the appraised value was significantly lower than I expected. The appraiser had indicated the value of the property had...

Comments (4)


I'm looking into refinancing and estimating the value of my house. I've been using Bank of America's Real Estate Center's What's Your Home Worth? estimate tool webite: http://realestatecenter.bankofamerica.com/tools/marketvalue.aspx?cm_mmc=CRE-HomeLoans-_-vanity-_-CA01VN002F_homevalue-_-102910
Is this tool even somewhat accurate?

I tried that tool and the price range for our property estimate was $75k - that is pretty wide. That being said, our appraisal came in at the very bottom of the estimate range on the BOA tool.

Do you have any lenders that you have worked with and are pleasant?

Is the "no closing cost" feature just another way of tricking borrowers when in reality they still have to pay for it later but in the guise of higher interest rate?

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