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Seller Cost Net Sheet

Mortgages With No Closing Costs: How Do They Work [Part 2]

March 3, 2023

In the first part, we've discussed a no closing cost mortgage works, the benefits, and how you can purchase a property with closing cost. 

So now, we’ll dive deeper into mortgages with no closing.

The Alternatives To Mortgages With No Closing Costs

These are the alternatives to using mortgages with no closing costs, including seller concessions, grants for first-time home buyers, and down payment assistance. Below are the details of each alternative:

1. The Seller Concessions

Seller concessions are just a form of financial incentive for sellers that provide property buyers with a way to lower the price of residences. The most typical seller concession occurs when the seller uses the revenues to cover all or part of the buyer's closing costs. Seller concessions can include origination, title, settlement, discount points, and state and local real estate taxes.

Seller concessions amount to 6% of the purchase price, or $6,000 for every $100,000. Seller concessions need the consent of the mortgage lender. Notify your lender if you want to use seller concessions for your next transaction. 

Moreover, here are the rules that you need to know:

  • The seller concessions must be mentioned in the purchase sales contract.
  • Seller concessions may not exceed the total closing costs of the transaction in value.
  • The settlement statement needs to list each concession made by the seller.

2. The First-Time Home Buyer Grants

First-time home buyer grants are financial assistance programs that provide first-time buyers with money to help make homes more accessible. 

Cash grants can be worth up to $50,000 for qualified buyers and help with closing costs, down payments, house repairs, and other home-buying expenses. 

The Down Payment Toward Equity Act provides up to $25,000 cash to first-time home purchasers. It is one of three cash grant measures before Congress. But this bill has not yet been signed into law.

3. The Local Down Payment Assistance Programs

First-time homebuyers with low and moderate incomes might get support from local down payment assistance programs. First-time homebuyers receive cash assistance, forgivable loans, and closing cost aid from down payment assistance programs. Before applying, contact your local provider, as programs may be inactive or out of cash.

a couple reading the documents

Answering Some Questions About Mortgages With No Closing Costs

Are the terms of mortgages with no closing costs the same as those of a standard mortgage?

  • Yes, no closing cost mortgages are structured similarly. Buyers can choose loan terms and fixed or adjustable interest rates. A no closing cost mortgage is unique since the lender pays the closing charges.

Will the interest rate on mortgages with no closing costs be higher?

  • Yes, mortgages with no closing costs have higher interest rates than buyer-paid closing costs. An increase in the interest rate compensates a mortgage lender for covering purchase costs.

When my lender includes closing costs in my loan, is that a zero-closing-cost mortgage?

  • Zero closing cost loans are when the lender pays on behalf of the buyer's closing costs. Buyer still pays fees when they wrap their closing costs into a mortgage.

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8315 W. 10th Street
Indianapolis IN 46234

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