Let's be clear about one thing, closing costs to procure a mortgage don't just disappear because some rock star mortgage loan officer has figured out that consumers should really be able to get a mortgage and not have to pay for it. Sorry to burst your bubble folks. Doesn't matter who is on the radio or sending you mailers stating that they are able to do what no one else has the common decency to do, and that is give you a mortgage and no need to worry about paying any closing costs; it simply is not possible. You, as a consumer, are paying the costs associated with the mortgage, I promise, and let me explain.
Here is a very quick, behind the scenes explanation for my statement above. The majority of the closing costs are standard, third party expenses that are charged by individuals or companies and encompass things like appraisals, any kind of taxes, title insurance expenses, and closing agent charges to name a few. An example would be in the state of Tennessee, when you refinance a mortgage, you have to pay a tax that is a fixed tax rate based upon your new loan amount. Now the state of Tennessee is not going to cut some deal with your rock star loan officer to just forgo that charge for his clients; has never happened and will never happen. So how are some lenders claiming they can do this? Well, bottom line is they will pay those expenses for you. When you obtain a mortgage, the rate you lock in with your lender pays your lender income for that rate you were sold. That income will vary depending on your rate compared to a generic market rate that particular day. So if you agree to lock a rate in that is 1/4% higher than say what that lender could have given you, they then can use that extra income they are earning by giving you that rate to cover your closing costs. You are paying for those costs over the life of your loan versus up front at closing! Now this may work in your favor depending on certain factors, but don't be misled into thinking that you aren't paying for the closing costs.
A future article will get into the specifics on the pricing of your loan that are never discussed with you, but bottom line is your rate you lock into will either allow the lender to pay some or all of your closing costs, or you can end up with a more aggressive rate and pay your closing costs yourself. By the way, whether or not you roll your costs into your new loan will have no impact on the basic idea I have just given you here.
Just one more way to empower you and help you Manage your Mortgage!
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