Can I Do a No-Cost-at-Closing Loan?
Wouldn’t it be wonderful if you could just say, “I’d rather not pay for any closing costs.” and your lender just shrugged and said, “Alright, then. Don’t worry about it”? The good news is that you can totally do that! The bad news is that it’s not as simple as just getting your closing costs waived. You have a few options as far as finding a way to not pay your closing costs. The first option is to work with your seller on some concessions, and the second is to work with your lender on negotiating a higher interest rate in exchange for them covering your closing costs. You also need to consider when it’s a smart idea to do so and when it’s best to just stomach the cost.
The VA permits the seller (or any other party, for that matter) to pay as much on behalf of the borrower as they so desire. In other words, a seller can completely pay for a VA borrowers closing cost if the buyer can convince the seller to do so. Seller concessions of this nature are actually fairly common. Sellers often just want to get enough out of their home to supplement their down payment on their new home, and they are often willing to miss out on more cash above and beyond that amount in exchange for being able to sell the home quicker. In many cases, the seller has already moved and is under serious strain trying to make two mortgage payments. If you are using a real estate agent, see if he or she has tried negotiating for that concession, and if not, see if it’s an option. Having the seller pay for closing costs is free money for you with no penalty, and it’s the most advantageous way to get a loan with no upfront cost. It’s not the only way, however.
VA-approved lenders will almost always be willing to negotiate a higher interest rate in exchange for lower closing costs. Some lenders, including Low VA Rates, are willing to go as far as it takes to completely remove closing costs. It doesn’t generally take as far as you might think. Since getting your closing costs taken out makes your interest rate go higher, you’ll obviously feel the bite of that decision over time, and therefore we generally recommend that you don’t eliminate closing costs unless you are planning on moving or refinancing within 12-18 months. You certainly don’t have to do so, but once you’ve gone longer than 18 months, the increased amount of interest that you’ll be paying is enough that it would have been far better to just pay the upfront closing costs.
Obviously, in a perfect world, you’d have all the money you needed to pay for closing costs with no problem. As it stands, you’re usually better off paying as much of closing costs as you can, and only taking as high of an interest rate as you absolutely have to to get closing costs down to where you can afford them. You may be surprised, however, at the tricks we can pull out of our hats here at Low VA Rates to get you very good loan terms and not have you pay any closing costs. If closing costs are something you’re worried about, and you truly need to do a no cost loan, definitely talk to us about it and see what options we can offer you.
Everything above has to do with a new purchase loan, but you may be pleasantly surprised to learn that the VA’s streamline refinance option, the Interest Rate Reduction Refinance Loan (IRRRL), can be done with zero money down, because the VA allows you to roll all of the closing costs (including the VA funding fee) into the loan amount. In this way, you can get your VA loan with no money down now by getting a higher interest rate, then refinance with an IRRRL in a year from now with no penalty for rolling closing costs into the loan and get a much better interest rate. Feel free to bring any questions up with us here at Low VA Rates.