Unfortunately, some of the terms in the mortgage industry are not applied uniformly. My favorite example concerns a mortgage that supposedly has no closing costs. For a true no cost loan, the math is very simple. Take your payoff, add the amount for escrows (such as property and insurance), and the upfront mortgage insurance premium / funding fee, if it apples. This should equal your new loan amount, with appropriate adjustments if you are bringing cash to the closing or receiving cash back. Sometimes the lender may be able to pay the upfront FHA mortgage insurance premium or funding fee for the borrower. Ask your lender about this. If they do not know about this, find a competent lender.
Once again I am encountering lenders who utilize a different definition of a no cost loan that creates a false impression and confuses the borrower. With their definition, the loan costs are added to the loan, but they define it as a no cost loan because the borrower does not have to bring the closing costs to the closing in cash. I feel this is deceptive as the borrower is incurring a cost that will someday have to be paid back. Deferring a cost does not mean it did not happen, only that you will have to pay it back at a later date.
As always, do the numbers to determine what is best for your unique personal situation. If you need help on your mortgage analysis, let me know.
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