A no fee mortgage is a mortgage without any closing costs. Typically making up three to five percent of the total on the loan, closing costs can be an unexpected blow when a mortgage is originated. With a no fee mortgage, the lender covers these costs, and all the borrower needs to bring is the down payment. This type of mortgage should not be confused with a no cash mortgage, where the closing costs and down payment are bundled into the mortgage itself so people don't need to have cash when the mortgage is originated.
Closing fees include a variety of fees assessed for things like title searches, processing loan paperwork, and private mortgage insurance (PMI) if the borrowers are bringing a down payment of less than 20 percent. They can rack up quickly and vary by region, with people in some areas paying much higher closing costs than others. Banks offer no fee mortgages as a customer incentive to attract borrowers.
It is important to be cautious when evaluating a no fee mortgage offer. Critics of such mortgages point out that lenders usually try to recoup the fees over time by charging a slightly higher interest rate to their borrowers. People considering this option may want to get comparison quotes from several lenders to see if the no fee mortgage is coming with a higher interest rate. Borrowers can also sit down and calculate their savings over time; it's possible that even with a slightly higher rate than other loans, people could still save money over the life of the no fee mortgage.
Lenders usually publish information about their going interest rates to give people a chance to comparison shop before going through the loan application process. The quoted rates will usually include a note indicating that they are for “ideal” borrowers with high credit scores and ample credit history. People with low scores or limited credit history may not be able to obtain the quoted rates published by banks and mortgage companies.
Mortgage brokers can provide information about available no fee mortgages in a given region and people can also discuss their options directly with loan officers at banks and other financial institutions. One advantage of going through a broker is access to a large database of lending options, along with special offers, as brokers can receive a discount rate when they bring a large number of borrowers to a bank. Mortgage brokers also commonly assist people with the practicalities of pulling together paperwork associated with the loan.